Prime broker challengers like Cantor Fitzgerald, Interactive Brokers and StoneX are gaining ground as they seek to attract smaller hedge funds that are often underserved by major banks, according to a report by Financial News.
Goldman Sachs, JPMorgan and Morgan Stanley continue to dominate the prime broking market, each holding $1tn in client balances and generating billions in fees. However, the largest hedge funds consume most of their balance sheets, leaving room for non-bank prime brokers to capture market share among hedge funds with less than $1bn in AUM.
According to Hedge Fund Research, of the 8,200 funds active in 2024, about 80% manage less than $1bn, and 40% have less than $100m in AUM.
Steve Sanders, executive vice president of marketing and product development at Interactive Brokers, highlighted the firm’s focus on smaller funds with cost-effective online offerings. “Big banks are expensive because they employ numerous personnel available around the clock,” he said. “We’ve automated everything and view self-service as beneficial.” This strategy has paid off, making Interactive Brokers the fifth-largest prime brokerage provider with over 1,500 hedge fund clients, according to Preqin. It is the top choice for hedge funds with less than $50m in assets.
StoneX has also capitalised on market changes, such as the shift to centralised clearing, uncleared margin rules and Basel III capital requirements, which make serving smaller funds less appealing for big banks. “Top-tier banks are raising their minimum account charges,” said Andrew Sterry, head of UK prime services at StoneX. “What is a good account for us might be a small one for them.”
Sterry noted that StoneX’s UK prime brokerage has expanded over the past 18 months, adding a cash business and attracting clients interested in fixed income, futures, and foreign exchange. “Our strongest growth is in the fixed income space, which is generally underserved in prime brokerage.”
James McAuslan, global head of prime services at StoneX, said the firm targets the 37% of hedge funds with $100m to $1bn in assets. Regulatory and market structure changes have shifted big banks’ focus, leaving a substantial niche for non-bank prime brokers.
Cantor Fitzgerald is enhancing its European offering to compete. “We are investing in prime and expanding our cash prime business in Europe,” said Sean Capstick, chief executive and head of prime brokerage at Cantor Fitzgerald Europe. The firm plans to introduce a cash prime service for equities and fixed income, as well as prime brokering for futures and options. “Our prime brokerage offering is similar to the bulge bracket banks but also caters to smaller funds,” Capstick explained.
Despite these efforts, non-bank prime brokers are still often seen as secondary options. “Hedge fund managers tend to be very brand-aware,” said an unnamed prime brokerage head. “Big names like Morgan Stanley or Goldman Sachs don’t need to market their services—they attract clients organically.”
Although major banks remain popular with mid-tier funds, firms like Cantor Fitzgerald emphasise offering a more customised approach for smaller funds. “Our clients need a hands-on, tailored service due to their size,” said Lakhvir Kaur, COO at Cantor Fitzgerald Europe.
The prime broking market is substantial and growing, with firms striving to build lasting relationships. Capstick said: “If you provide good service and advice when they start out, they tend to remain loyal. That’s the relationship we aim to build with our clients.
“There’s enough to go around. It is a $3tn market plus leverage.”
