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Hedge Funds Turning to I-Banking

Last month Citadel Investment Group announced that it is launching an investment banking division. The company sees huge potential for transactions going forward, and given its outsize capital base, has the distribution network and liquidity at its disposal to execute. Other firms could follow suit, such as publicly-held Fortress (FIG).

But is this the best strategy? It's true that there has been perhaps no better time to be a boutique investment bank. Wall Street has been decimated by the events of the last 18 months, providing small shops with the dual windfall of talent and competitive advantage.

Rather than build an investment bank from scratch, there are numerous firms which could provide hedge funds with access to the coming wave of M&A and IPOs. Even in this age of advanced financial (yet impersonal) technologies, traditional investment banking remains heavily relationship-driven, and cultivating those relationships takes time and resources. We believe that hedge funds would do better to consider a strategic partnership or acquisition as this would provide a more efficient structure, and hasten top-line revenue growth.


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