Hedge funds surpass mutual funds in equity trading volume

An equity investors study by Greenwich Associates showed trading volume generated by hedge funds surpassed mutual funds last year and now ranks second only to traditional asset-management shops. The financial-consulting firm said the influence of hedge funds as a way of generating equity trading has helped Merrill Lynch & Co. and other firms " solidify" their standing as top U.S. brokers in terms of market share.

"Although the second half of 2007 was something of a wild ride, hedge-fund performance for the year was relatively strong, and from a U.S. equity trading perspective, hedge funds were extremely active," said Greenwich consultant John Feng.

Greenwich said nearly 30% of U.S. institutional equity commission payments in the year ended February were generated by hedge funds, up from 24% a year ago. Meanwhile, mutual-fund commission payments declined 19% after falling 10% the previous year.

Commissions paid by the typical U.S. institution increased to more than $26 million from $24.7 million.

Greenwich noted Merrill Lynch and Lehman Brothers Holdings Inc. are the largest trading franchises, with market share between 8% and 9%. Goldman Sachs Group Inc., Credit Suisse Group, Morgan Stanley and Citigroup Inc. follow with 7% to 8% in market share.

The firm also said U.S. institutions gave the highest ratings for overall sales trading and trading quality to Merrill Lynch and Lehman.

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