JPMorgan Says ‘Next Stop $1 Trillion’ for Hedge Fund Balances

JPMorgan Chase & Co. hit a major milestone in its business that caters to the world’s largest hedge funds. And now the bank has even loftier goals.

Global customer prime balances jumped 25% this year to surpass $500 billion, according to an internal memo seen by Bloomberg News. “Next stop $1 trillion!” executives including Jonathan Cossey and Charles Chiang, co-heads of prime finance, said in the note on Wednesday. JPMorgan confirmed its contents, declining to comment further.

The biggest U.S. bank has invested heavily in electronic trading and boosted its prime brokerage to climb the ranks in stock trading during the past five years. The firm was second among global banks in prime services revenue in 2018, according to data from Coalition Development Ltd., and JPMorgan said in July that client balances hit a record.

Prime brokerage units handle relationships with hedge funds, offering trading services and lending securities, and can often be the foundation of banks’ trading units.

New capital rules following the financial crisis made the business less profitable and pushed some banks to shed selective clients and look to grab a bigger share of large funds’ business. The JPMorgan target comes just as Deutsche Bank AG, one of the biggest players servicing hedge funds, said it was exiting the business as part of a wide scale restructuring plan.

“We continue to gain market share with existing clients, onboard new managers, have made a noticeable splash in the start-up space and our future remains bright with a strong pipeline of new business,” Cossey and Chiang said.

The world’s biggest banks generated about $18.3 billion of revenue from prime services in 2018, an 8% increase on a year earlier, according to data from Coalition. Morgan Stanley was the industry’s biggest player followed by JPMorgan and then Goldman Sachs Group Inc., the data show.

— With assistance by Donal Griffin

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