CHARLOTTE - Bank of America Corp. is raising its profile as a purveyor of services to the burgeoning hedge fund industry.
Its eight-year-old prime brokerage unit, which is part of Banc of America Securities LLC, already sells trading, financing, technology, and other services to hedge fund managers, specifically to those at start-up funds. But in recent months it has hired more personnel and added services to attract the larger, more established funds.
In July, Banc of America Securities hired Chris Pesce from the prime brokerage giant Goldman Sachs Group Inc. to run the unit, and in recent months he has appointed a new chief operating officer and lured executives from Goldman, Merrill Lynch & Co., and other Wall Street firms.
The unit added derivatives capabilities to satisfy the growing demand for alternative investment products among fund managers, Mr. Pesce, the New York-based global head of prime brokerage, said in a recent interview. "What's happening is our customers are using derivatives more and more in their portfolios."
Bank of America officials say the new capabilities are aimed at expanding the unit beyond its niche of start-up hedge funds.
The number of firms in the prime brokerage business has shrunk in recent years. Beyond the two leaders, Goldman and Morgan Stanley, "it's pretty consolidated at the moment, with only a half-dozen or so noteworthy competitors," said Robert Albertson, the chief strategist at Sandler O'Neill & Partners LP in New York, who used to run his own hedge fund, Pilot Financial.
Despite this consolidation, observers say a few companies, including Bank of America and Merrill Lynch, are investing capital in the business, in part because it is one of the few bright spots in an otherwise lackluster market.
"Hedge funds are viewed as being one of the few areas of growth in the market," said Thomas McCandless, an analyst at Keefe, Bruyette & Woods Inc. in New York who follows Bank of America.
Spending on prime brokerage makes sense, Mr. McCandless said. "Hedge funds are becoming a bigger part of the pie, in terms of total commissions, in terms of terms of commission growth. … It's becoming a growing customer base on Wall Street."
Among other things, "those customers are increasingly wanting to deal with derivatives as well," he said.
Bank of America's traces its prime brokerage history to Montgomery Securities, which entered that business in 1995. NationsBank Corp. bought the San Francisco-based Montgomery in 1997. The following year it acquired BankAmerica Corp., also of San Francisco, to form what is now Bank of America.
The prime brokerage unit has traditionally provided a variety of services that hedge fund managers might need to open their doors, from trading and clearing to Web design and even office space. "When a hedge fund starts up, they'll pick a prime brokerage, so that's the best time to get them," Mr. Pesce said. Bank of America has been a "one-stop shop" for start-ups, which is "our sweet spot."
At Goldman, he had been the head of equity finance sales and for a time ran its prime brokerage operations in Hong Kong. At B of A, he reports to Chris Innes, its global head of equity derivatives, who also oversees prime brokerage.
In February, Stephan P. Vermut, resigned as the unit's president and chief executive officer, after being assigned to report to Mr. Pesce last year. Mr. Vermut, who helped found the business at Montgomery and expanded it to 800 clients and $30 billion of assets under management, had worked in San Francisco.
Under Mr. Pesce, the B of A unit has renovated its leadership. Glen Dailey, one of the group's original executives at Montgomery, was named the chief operating officer, and a slew of executives have been hired from Wall Street firms.
Pascal Scemama, formerly of Merrill, was hired as the head of prime brokerage trading and risk. Mark Whitehead, also from Merrill, was named the head of European prime brokerage. Graham Cook, formerly of Goldman, joined B of A as the manager of the Chicago office, and Bruce Giedra, from Lehman Brothers, was hired as the head of tax and structured products.
Mr. Pesce also hired Michael Rogers from Goldman as the lead counsel. He reports to Bill Caccamise, the head lawyer for equities at Banc of America Securities.
