Big banks want more bang for their buck from hedge fund clients. Rather than trying to pull in as many clients as possible, they are putting pressure on hedge funds to give them more profitable business and to change the way they trade.

When accountancy firm EY published its 10th annual global hedge fund and investor survey in November, 60% of hedge fund managers said their prime brokers had asked for “fundamental alterations” to their relationship to make it economically viable, including increasing trade allocation and making changes to treasury management.

“We continue to witness a trend of prime brokers re-evaluating the types of business they do and the managers with whom they are willing to do business,” EY said.

Whether to grow or cut back prime brokerage activities, in which banks provide leverage and trading services to hedge funds, has been a big question for firms in recent years. The answer has largely depended on the size of the investment banks.

George Kuznetsov, head of research and analytics at research firm Coalition, said: “The trouble for prime [brokers] started when the [leverage ratio rules] were introduced because prime does use a lot of balance sheet. The banks started thinking about optimising their prime market share and thinking a little bit more about how they look at prime from a slightly different angle.”

Jonathan Cossey, co-head of prime finance at JP Morgan, said that his goal was to gain market share but not at the expense of profitability. The US bank has increased its prime services revenue in Europe, the Middle East and Africa by 40% this year, Cossey said, mainly by boosting the number of clients and types of work it does for them, but also by slimming down some of the less profitable offerings.

“We have strong aspirations to get to No. 1 in Europe but by profitability not size,” Cossey said. “Funds that may be good for one bank may not always be the right fit for another bank.”

Joseph Leckie, head of sales and marketing in HSBC's prime finance division for Europe, the Middle East and Africa, said the bank is having conversations with hedge funds that make their relationships “more transparent” and help “manage expectations on both sides”.

The head of prime brokerage at a US bank said that his team had become pickier about what types of business it took on: “What one prime broker may find interesting, another may not. It depends on what you currently have on your books.”