IT spending by prime brokers will reach well over $1.2 billion by 2006 as they commit themselves to STP and push towards meeting the impending deadline for the industry-wide T+1 initiative, according to new research from Celent Communications.
The report, which examines the current state of the prime brokerage market, suggests the days of equating prime brokerage services to simple back-office operations are long gone. Instead, prime brokers now support all aspects of investment management and transactions, ranging from capital formation and clearing and settlement to securities lending, financing, and technology services.
Sang Lee, analyst at Celent, says: "The globalisation of hedge funds, coupled with their propensity to use a diverse mixture of financial instruments, has propelled prime brokers to increase their service offerings to better support the sophisticated investment strategies of the leading hedge funds."
He adds: "As the financial services industry marches towards achieving straight-through processing, it has become vital for prime brokers to integrate their disparate systems so that they can continue to provide reliable services to the hedge fund industry."
Recent research by TCA Consulting indicated that hedge funds are becoming increasingly dissatisfied with the levels of straight-through support offered by prime brokerages. The report blames incompatibilities in the prime broker back office for the lack of progress.