Citigroup's Asian prime brokerage division is beefing up. The group says it is committed to devoting the necessary resources and capital to position itself as a lead player in the lucrative market of servicing hedge funds.
Historically, Citi has not had much of a prime brokerage presence in the region. Operations have been limited to Japan, where the firm's Nikko-Citigroup joint venture has a Tokyo-based team, currently led by William Jensen.
Citi's ambitions to become a significant Asia wide player took shape earlier this year, with the hiring of Hannah Goodwin from Deutsche Bank to lead the Asia ex-Japan PB team in Hong Kong. Goodwin is a veteran in the Asian prime brokerage field, having spent six years with Morgan Stanley's Asian operations, before shifting over to Deutsche where she spent the last five years building up the group's Asian presence.
Commenting on her decision to move to Citi Goodwin says, "Citi has historically been a sleeping giant in the region. Building up their Asian platform is an interesting challenge for me. Having built Deutsche's business up to the stage where it is now, I was ready to try something new."
Goodwin explains that Citi's strategy will be to offer across the board, multi-asset class PB services that put the firm on par with the leading prime brokerage providers in the region.
"Prime brokerage at Citi is a central point that aims to bring together the various services that the firm is already providing to hedge funds through its various divisions, including research, execution services and banking," she says.
She believes that Citi is well positioned to service hedge funds because of the breadth of services it can provide clients.
"Citi can service hedge funds right from starting the business to marketing it. From the day one opening of the firm's bank account, to running the business, providing research ideas, products, global execution, financing and distribution capabilities."
Jensen in Tokyo adds, "The Citi- Nikko joint venture in Japan is unique, and we can leverage off our Nikko relationships in areas such as asset management, private banking and stock loan to provide a broader service to our clients. For local investors, we provide a window to the wider world of alternatives."
Citi has been aggressively growing its team. "This is not the type of business that can be built piecemeal, you have to have everything in place before clients will move their balances over," explains Jensen. In Tokyo, he has added five new members to the team in the last three months, focusing on stock loan, sales and client services.
Goodwin brings with her to Citi, two members of Deutsche's prime brokerage team who are based in Hong Kong. Across Asia and Japan and including equity finance, the Citigroup prime brokerage team totals 17 people, which Goodwin believes puts the firm on a comparable scale to its regional competitors. Additional team members, including a Hong Kong-based head of sales, are on course to join the team at the end of the summer.
The team is also on track to build its Asia dedicated value added services, matching all the bells and whistles its competitors can promise. In addition to dedicated capital introduction professionals in New York and London, Citi recently hired a Tokyo based cap intro specialist, Koichi Shijima. Goodwin expects to add an Asian-based cap intro member soon. In addition to consultants in New York and London, an Asian dedicated one is on the future agenda.
Goodwin explains that an important part of Citi's business comes from global hedge fund clients trading in Asia. The firm will also be targeting second PB mandates amongst larger Asian hedge funds and will strategically support new start ups."
During the last few months Goodwin notes that her regional PB team have already won half a dozen mandates. She sees more in the pipeline, and expects to leverage on the bank's strong Indian presence to service India dedicated hedge funds.
Prime brokerage, whilst a lucrative business, is one that is notoriously expensive to build and maintain, requiring significant amounts of capital investment. In Asia, Morgan Stanley and Goldman Sachs have held a long-standing duopoly over the business, although significant team building and capital investments by UBS and Deutsche have seen both make significant inroads.
Last year saw Merrill Lynch grow its Hong Kong prime brokerage operations, and build out its team aggressively with key senior hires. This year, it looks like Citi is set on a similar course.
The conventional wisdom is that despite the rapidly expanding hedge fund industry in the region, some type of consolidation among service providers is likely to emerge eventually. Goodwin agrees, "In the next two to three years I expect about three of four key firms to dominate prime brokerage space in the region."
Despite the late start, she expects Citi will be one of them.