Strong year for hedge funds drives big gains for Wall Street's prime brokerage engine

• Banks have been aggressively competing for prime brokerage market share following Credit Suisse's collapse and exit from the business after the Archegos crisis
• Hedge fund leverage is near all-time highs, with stock-picking funds returning 16.24% in 2024, roughly matching the S&P 500's 16.4% gain
• Large multi-manager funds including D.E. Shaw, Balyasny, Bridgewater and Point72 achieved mostly double-digit gains, benefiting from market volatility driven by AI trends and trade tensions

Summary

Wall Street's major banks reported significant Q4 growth from their prime brokerage units, earning substantial fees from lending to large multi-strategy hedge funds that delivered strong returns amid market volatility.

Key Financial Results:

• JPMorgan Chase: 40% revenue surge to $2.9 billion in equity markets, driven by prime brokerage
• Bank of America: 23% jump in equities business revenues in Q4
• Citigroup: $1.1 billion in equities markets revenue, with prime balances up over 50%

Market Context:

Major U.S. banks have aggressively competed for market share following Credit Suisse's collapse after the Archegos Capital Management disaster caused billions in losses. This created opportunities as banks absorbed the Swiss lender's prime brokerage operations.

Hedge fund leverage for traditional long/short equity strategies is near all-time highs and rising, according to data from Goldman Sachs, JPMorgan, and Morgan Stanley. Stock-picking hedge funds posted 16.24% returns in 2024, matching the S&P 500's 16.4% gain.

Key Players:

Major hedge fund clients include D.E. Shaw, Balyasny Asset Management, Bridgewater Associates, and Point72 Asset Management, which achieved mostly double-digit gains in 2024. Global macro funds also benefited from volatility triggered by trade wars affecting bond and currency markets.

The favorable trading environment featured significant market rotation without extreme volatility, allowing clients to add leverage without counterparty concerns. Goldman Sachs and Morgan Stanley, housing two of the world's largest prime brokerage units, were expected to report earnings on Thursday.