The hedge fund industry has undergone significant changes in the past decade as a result of the global recession in the late 2000s and high-profile scandals that spurred Congress to pass the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, which increased the regulation of the hedge fund industry.
These developments have prompted some investment banks to rethink their prime brokerage practices as a result of increasing regulation and lower profitability. Some industry leaders (such as Goldman Sachs and Morgan Stanley) are aggressively pursuing growth strategies, while others (such as Credit Suisse and Deutsche Bank) are reducing their prime brokerage businesses. While investment banks control approximately 83 percent of the prime brokerage industry, according to Preqin (a provider of data analytics for the alternative assets industry), independent prime brokers such as Interactive Brokers and ConvergEx are gaining market share.
Prime brokers remain an integral part of the hedge fund structure. They will continue to be needed to act as the primary liaisons between hedge funds and prime brokerage departments.