In, out, shake it all about. The fall of Bear Stearns earlier this year persuaded many hedge funds to switch to Goldman Sachs and Morgan Stanley as their prime brokers. The two firms are the industry leaders in the (once) lucrative business of providing hedge funds with financing, lending them shares for short-selling purposes, settling trades and housing fund assets. Lots more switched again once Lehman Brothers went bankrupt in September. This time, the flow was towards the banks, as hedge funds realised that the broker-dealer model was much wobblier than they thought. JPMorgan Chase, now the owner of Bear, has seen a 25% rise in prime-brokerage assets over the past few weeks.rnThe question is whether hedge funds will again return to the old Wall Street fold. Now that Morgan Stanley and Goldman Sachs have received the blessing of the American government, thanks to the capital injections announced this month, worries about counterparty risk have clearly diminished. Insiders report that customers are coming back.
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