Hedge Funds, Once a Windfall, Contribute to Bear’s Downfall
Monday, March 17, 2008 : PermalinkWall Street Journal- The hedge-fund business came back to haunt Bear Stearns last week, however, as a wave of nervous funds pulled their accounts, helping to put the brokerage firm in a precarious position. The moves, which came even though the hedge funds’ accounts often are separate from Bear Stearns’s own accounts, serve as a reminder of the growing importance of the uncertain business of catering to hedge funds.
For years, Bear Stearns Cos. reaped a windfall lending money to hedge funds and conducting trades for them. As these funds multiplied, the firm was among the leaders courting them, providing everything from advice on how to launch a fund to helping them find office space.
The hedge-fund business came back to haunt Bear Stearns last week, however, as a wave of nervous funds pulled their accounts, helping to put the brokerage firm in a precarious position. The moves, which came even though the hedge funds’ accounts often are separate from Bear Stearns’s own accounts, serve as a reminder of the growing importance of the uncertain business of catering to hedge funds.
Indeed, one of Bear Stearns’s most valuable remaining assets, and one that was certainly attractive to announced acquirer J.P. Morgan Chase & Co., is this lucrative business called prime-brokerage, some argue.