Top Payers

At Citigroup, that’s meant catering to the big hedge funds that consistently trade more than anyone else, said the person familiar with the bank’s internal practices. This year, the bank winnowed its favored list to fewer than a hundred to devote more attention to its top-paying clients and discouraged analysts from spending time on anyone else, the person said. The analysts have quotas to ensure they keep in touch regularly. They must track their progress on a spreadsheet.

To make the cut, firms typically need to generate at least $2 million annually in equity trading revenue with the bank. Though precise numbers are hard to come by, the “Focus Five” shops may trade multiple times that amount. The hedge-fund firms, which held roughly $120 billion of U.S. stocks at the end of last year based on filings compiled by Bloomberg, are some of the biggest and most well-known in the business.

‘Focus Five’

They include: Israel Englander’s Millennium, a multi-strategy manager known for making millions of trades a day and picking off tiny profits from each; billionaire Ken Griffin’s Citadel empire, whose market-making business is one of the U.S. stock market’s biggest automated traders; Point72, which oversees the personal fortune of billionaire Steven A. Cohen, who once captivated Wall Street with an almost preternatural knack for reading the markets while running SAC Capital.

Carlson Capital, the Dallas-based hedge fund founded by Clint Carlson, who helped manage the Texas oil fortunes of the famed Bass brothers, and Surveyor, a separate Citadel hedge-fund unit that trades equities across 29 teams, round out the group.

‘Focus Five’ Firms at Citi Holdings of U.S. Stocks Citadel $55.7 billion Surveyor (a unit of Citadel)      n/a Millennium $44.3 billion Point72 $11.1 billion Carlson $8.95 billion Source: SEC filings as of 12/2015
Representatives for the hedge funds declined to comment.

It’s not just equities. Citigroup keeps lists of accounts across its businesses, some ranked by assets, others by trading volume, said another person with knowledge of the bank’s internal practices. The company identifies favored clients by “platinum,” “gold” and “silver” status. On the credit research desk, a priority list includes BlackRock Inc., Fidelity and Franklin Resources Inc.

At Morgan Stanley, the firm’s European list of “supercore” clients includes BlackRock and Pacific Investment Management Co., the people familiar with the matter said. The bank began analyzing its client base in 2012 and looked at every interaction its sales team had with customers, from instant messages to phone calls and meetings. They found about 75 percent of revenue came from roughly 25 percent of clients, the people said.

While providing the top-paying funds with the best service is well within the rules, the various rankings and methodologies highlight just how far banks are willing to go as they shift toward a model that relies exclusively on a small number of clients.