Banks generated a record $22.5bn in revenue from prime brokerage services in 2024, according to a report from financial data firm Coalition Greenwich. The figure marks a 20% increase from the previous year, driven by heightened hedge fund trading activity and higher client balances.
Key Drivers of Record Revenue
Coalition Greenwich attributes the surge to a combination of factors, including strong performance from hedge funds, which boosted their trading volumes and demand for leverage. Additionally, client balances grew as investors allocated more capital to hedge funds, increasing the assets under management that banks service.
The report notes that the top 10 global investment banks, which include names like JPMorgan, Goldman Sachs, and Morgan Stanley, captured the bulk of this revenue. These banks have been investing heavily in their prime brokerage platforms to attract and retain hedge fund clients.
Hedge Fund Trading Boosts Margins
Hedge fund trading activity was particularly robust in the first half of 2024, with volatile markets providing opportunities for both long-short and macro strategies. This led to higher financing and trading revenue for prime brokers, who provide services such as securities lending, cash management, and trade execution.
"2024 was a standout year for prime brokerage," said a spokesperson for Coalition Greenwich. "Hedge funds were more active, and their balance sheets grew, which translated directly into higher revenues for banks."
Impact on Bank Earnings
The record revenue from prime brokerage has contributed to strong overall trading results for major banks. For example, JPMorgan reported a 12% increase in its markets revenue for 2024, while Goldman Sachs saw a 15% rise in its global markets division. These gains have helped offset weaker areas like investment banking, which faced a slowdown in mergers and acquisitions.
Looking ahead, Coalition Greenwich expects prime brokerage revenue to remain elevated in 2025, though growth may moderate as market volatility subsides. Banks are likely to continue competing for hedge fund business, which could lead to further innovation in services and pricing.
