The Prime Brokerage Book

Believe that if you spend your time helping others get what they need or want that the relationships you build will bring you what you need. In this spirit I’m offering The Prime Brokerage Book for free to anyone who would like to learn more about this area.

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The Prime Brokerage Guide is a 100+ page book that on the prime brokerage industry. It is a free-to-access resource, a compilation of articles, tips, interviews, book reviews and surveys, which can also be found on PrimeBrokerageGuide.com.

The Prime Brokerage Guide may be a helpful resource to hedge fund managers who would like to learn more about prime broker trends, capital introduction services, counter party risk management, fees, or working with multiple prime brokers. The guide may also be helpful to those seeking careers or new clients from within the prime brokerage industry.

This resource can help you learn both the basics and more granular details about how the industry operates as a whole. If you have any prime brokerage questions or would like to contribute a resource for this guide please email us at Team@PrimeBrokerageAssociate.org.

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Prime Brokerage Financing & Equity Services
Prime brokerage and counter-party risk management came up several times within conversations at the Hedge Fund Group (HFG) event in Chicago. Everyone we spoke with on this topic was an agreement that the following activities are leading to a flood of both small hedge fund startups and larger hedge fund businesses to look for additional prime brokerage relationships: Minimum fee charges of $25-30,000+ to remain a client of large prime brokerage firms High touch sales pitches which turn into low touch almost non-existent servicing once the hedge fund is a client of the prime broker Hedge funds wanting to lower custodian risk by multi-priming with 2-3 prime brokerage firms early on and then 3-5 prime brokers as their fund expands to over $750M or $1B in assets under management Capital introduction promises that are never delivered to the manager in any tangible way Large prime brokerage firms now often cutting out their clients who cannot product $20,000+ of business a month, they are too busy for these smaller accounts. This can sometimes lead to frustrating conversations for hedge fund managers who do not want to make changes right now and make changes to their trading or operations due to a switch in prime brokers If you have seen other reasons why the prime brokerage industry is evolving please send them in and we can add them to this list. If you are interested in working with a prime broker, which may offer multi-custodian solutions, technology and cap intro/marketing assistance please complete the form at the bottom of this page.

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Challenges of Multiple Prime Brokers
Here is a short excerpt from a recent article by Hedge Fund Review on multiple prime brokerage challenges and costs. This is an issue we have discussed here on HedgeFundBlogger.com and PrimeBrokerageGuide.com a few times in the past. The main benefits of multi-priming pointed out within this article include:  Broader securities lending offerings  Competitive financing rates  Additional market research  More access to capital introduction resources  Spreading counterparty risk out over several prime brokers Here is the article excerpt: Historically, most hedge funds with assets greater than $1 billion have operated in a multi-prime environment while smaller funds tend to use a single prime model in order to simplify their operations. Today funds of all sizes are moving to the multi-prime model. This is primarily due to larger funds requiring access to a wide range of products and services that may not be available within a single prime brokerage relationship. Introducing competition and expanding the services available to them has become more important for the long-term success of small funds as well. Expanding to a multi-prime organization can result in some additional operational overhead. However, the benefits seen within this model are generally regarded as worth the added effort. Having multiple prime brokerage relationships gives funds access to broader securities lending offerings, competitive financing rates, additional market research and more capital introduction services. read more...

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How to Start A Hedge Fund | Advice & Resources
We receive many emails asking how to start a hedge fund, or what resources we have for those looking to start a new hedge fund. Over the past year we have worked with over 200 hedge fund startups in various capacities. Below please find links to some of our hedge fund startup related advice and tips: Top 5 Tips for Starting a Hedge Fund (Part 1 of 2) Top 5 Tips for Starting a Hedge Fund (Part 2 of 2) Raising Capital With Tenacity Hedge Fund Marketing Tools Hedge Fund Seeding Setup a Hedge Fund Hedge Fund Formation | Tips on Forming a Hedge Fund CHA Designation | Benefits to Hedge Fund Startups Hedge Fund Public Relations Hedge Fund Seed Capital Starting a Hedge Fund | A Sample Timeline How to Start A Hedge Fund Hedge Fund Backers | A List of Capital Sources for Hedge Funds Email Newsletter Creation Tool Hedge Fund Ethics Seed Capital Sources Financial Advisor Marketing Marketing to Institutional Investors Third Party Marketing

The Hedge Fund Transparency Act
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Just about to jump on a plane so I don't have must time to write up much of a summary here but two senators have proposed new legislature, which would force hedge funds to register with federal securities regulators. There is a 90% chance that this quickly be approved: The Hedge Fund Transparency Act, sponsored by Senators Carl Levin, a Michigan Democrat, and Charles Grassley, an Iowa Republican, would require hedge funds to file an annual disclosure form with the U.S. Securities and Exchange Commission, comply with the agency‘s recordkeeping standards and cooperate with its investigations. ―The problem is that hedge funds have gotten so big and are so entrenched in U.S. financial markets that their actions can now significantly impact market prices, damage other market participants and can even endanger the U.S. financial system and economy as a whole,‖ Levin said... ―A major cause of the current crisis is a lack of transparency. The wizards on Wall Street figured out a million clever ways to avoid the transparency sought by the securities regulations adopted during the 1930s,‖ said Grassley, who introduced a similar bill in 2007. read more

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com PrimebrokerageAssociation.and for many more it will probably occur before the beginning of Q3 of 2009. ‗Give up arrangements‘ are where the executing broker writes trade tickets PrimeBrokerageGuide. Houston & State of Texas If you have been directed to this post via email we apologize for the less than personal response. These contain contact details for various funds and may be instantly downloaded.quickly. Many of these emails are in regards to accessing particular resources to help in career or potential client searches. List of Hedge Funds in Massachusetts List of Hedge Funds In Connecticut List of Hedge Funds in New York List of Hedge Funds in California List of Hedge Funds in Chicago and State of Illinois List of Hedge Funds in Dallas. For many hedge funds these changes are happening right now .000 emails from professionals who have came and visited our websites.The Prime Brokerage Book Over the last 12 months our team has received around 100. Here is the article excerpt mentioned above: Hedge funds of varying sizes report being given notice by prime brokers that OTC derivative give up arrangements will end .5B are being told new derivative trades "done away" will no longer be accepted near the end of the first quarter and that give up relationships will end completely in April.org 7 .com) A recent article by Alex Akesson noted that some large prime brokerage shops are now ending any OTC give up arrangements that their hedge fund clients had previously put into place. Below please find various state-by-state hedge fund manager contact lists available for under $100 each. Funds ranging in size from $25M to $2. please email us again if you have any further questions or concerns. Prime Brokerage OTC Derivative Arrangements (http://PrimeBrokerageGuide.

―Challenged by investors to provide increasing levels of transparency. This is due to necessary cost cutting. Here is the WSJ article excerpt: Brokerage firms are reducing financing and other services to hundreds of hedge funds.‖ source Prime Brokerage Services for Small Funds Just found an article from today within the WSJ which discusses how many banks and prime brokerage firms are cutting off services to some of their funds. "And the February 28 deadline after which major dealers will not accept novation consents by email looms. find other financing at higher cost or close." Hans Hufschmid.org 8 . high volumes and multiple counterparties. risk management and balance sheet clean up projects. Many large shops are segmenting clients into 2-5 lists with the smallest or most exotic funds being the first to be cut from their services such as custody or lending. CEO of GlobeOp Financial Services commented. The result is that more funds may have to merge. funds would also have to find the operational bandwidth and capability to efficiently manage the complexities of OTC trade processing involving multiple instruments. source PrimeBrokerageGuide. While those within the industry know that this has been going on for some time now I don't believe the full force of it will be felt until Q3 or Q4 of 2009.The Prime Brokerage Book on behalf of both counterparties to the trade – provided hedge funds with three advantages: easier post-trade operations. securities firms are dividing their hedge-fund clients into lists of those they consider best able to weather the financial turmoil and those they're less sure of. Under financial pressure. independent validation and reporting frequency. cross margining and credit intermediation. in a move that could accelerate the shakeout among these heavy-hitting investors. which they deem too small (under $200M) or exotic.com PrimebrokerageAssociation.

Some hedge funds in London had 100% of their assets frozen within Lehman‘s custody services.org 9 . this could be just as important to have in place as a disaster recovery system. Protecting the brand of your own hedge fund or private equity fund is more important than ever. partnered banks and hedge funds fled Bear Stearns as it sank and Madoff‘s fund raised half a dozen red flags from in house administration and self clearing to working with a 2 person auditing firm. The result is an effort by many to mitigate counter-party risk and conduct research on those who have been traditionally responsible for providing fund due diligence services. This is due to Lehman Brothers. As these two industries develop further many funds will continue to expand their use of public relations firms and many funds may need to have public relations plans in place to counter false rumors and be ready to act. PrimeBrokerageGuide. In each of these cases the common thread was the creation of or fault of un-reliable or unstable service providers. Fund managers are feeling pressure from hedge fund and private equity board members and investors to rely on well known and vetted service providers rather than trying to save 20% in fees by working with a local or lower cost operation. False rumors can cause investors to act irrationally and began to question the quality of a fund‘s team or operations.The Prime Brokerage Book Hedge Fund Service Provider Branding & PR The value placed upon the brand of service provider hedge funds and private equity firms are employed has doubled in the past 9 months.com PrimebrokerageAssociation. Bear Stearns. Madoff and others. Rumors of gating clauses being enacted or redemption requests spiking within a single fund can spread around the world in less than 3 days.

 Stress the importance and individual functions of your team. it is an iterative constantly evolving project which will never be complete.The Prime Brokerage Book Hedge Fund Pitch Book Marketing Materials Tips Below is a list of my top 10 tips to those professionals who are looking to create a pitch book for their hedge fund. your experiences and pedigree. Invest in creating a robust institutional quality pitch book the first time around and complete 5 drafts of it internally before showing it to a single investor. full 13-20+ page PowerPoint presentation and one page newsletter which would be released monthly providing your view of the markets within your niche area of expertise.com PrimebrokerageAssociation. investment process and risk management controls and how they all interact inside the operations of your hedge fund. Professionals who work in prime brokerage or administration see many types of marketing materials and can help provide valuable feedback at no PrimeBrokerageGuide. Your advantage must be unique.  Do not send any pitch book or marketing material out before speaking with a qualified compliance or legal counsel on your team. This should be the foundation upon which everything else is built.  Make your competitive advantage clear and do not rely upon canned phrases such as ―positive returns within bull or bear markets‖ anyone who reviews hedge fund materials for a living see these by the hour.org 10 .  Create a one page marketing sheet. My advise to both $30M and $1M hedge funds is that you can never start this process early enough.  Stress your team.  Work with high caliber service providers so that you don‘t bring extra skepticism upon a relatively new fund.  Think long-term.  Use your whole team and prime brokerage business partners and other service providers to improve your marketing materials. Here are the top 10 tips for creating your hedge fund marketing materials. which may already be scrutinized by potential investors and advisors.

The hedge fund and private equity industries are as entrepreneurial as ever. but this is the exception.com PrimebrokerageAssociation. In Q1 2009 there are hundreds of New York and London based hedge funds being started to take advantage of high volatility. 95% of the people who you will send the PowerPoint presentation to will not ready more than 15 pages of the material unless you are walking them through it over the phone or in person.  Do not create a PowerPoint presentation that is longer than 30 pages. exposed fraudulent activity. simple and professional layout for the presentation and use the new Windows Vista diagramming tools to create institutional quality presentation.The Prime Brokerage Book additional cost to your fund. Blood On The Hedge Fund Streets While the economic conditions have shut down many funds. and also created a unique set of opportunities for a small subset of traders and portfolio managers within the industry. and relatively cheap talent hungry for a fresh start. I believe these figures will be high and will spur even more startup activity as others move to seize the current market opportunities. and we will be able to see how many funds have been started around the world.org 11 . choose a unique. Many of these young hedge funds and private equity groups are not yet on the radar of institutional databases or mainstream media outlets but by Q3 and Q4 of 2009 they will be. PrimeBrokerageGuide. historically low asset prices. you don‘t want to lose them due to the aesthetics of your PowerPoint. Coming into a meeting with a word document or 25 pages of bullet points is not very effective. There are some institutional money managers who run 3 similar funds and will sometimes cover each of these within a single presentation.  Purchase the rights to graphics. It is hard enough to catch an investors‘ attention and bring them to the table to discuss your fund.

please click here. a poor market and overall industry performance. In the past this was almost thought of as unnecessary as no large investment banks offering prime services had collapsed. The top three trends affecting the prime brokerage industry right now are multi-prime brokerage relationships. Some funds as small as $5M are choosing to work with more than one prime brokerage firm from the very start to reduce their exposure to individual firm risk. It was seen in the same light as a major economic superpower defaulting on its own investment notes.com PrimebrokerageAssociation. Lehman failed and many investment banks struggled or sold off their prime brokerage services to other firms. along with increasingly frequent reports of hedge fund fraud.org 12 . Multi-prime brokerage relationships had been used in the past by $5B+ hedge funds whose large institutional clients demanded the practice as a risk management technique. which are often referred to as third party marketers. This is due to a number of factors including the struggle and failure of many investment banks offering prime brokerage services. A mitigating factor PrimeBrokerageGuide. In 2008 everything changed. Anyone offering capital introduction services lately has faced the increased challenges of investors sitting on cash. A few firms have reported shutting down due to assets being locked up within Lehman Brothers when they collapsed earlier this year. Please see below for the full article that I wrote for TAAAps: Over the last two years the mainstream media‘s and general public‘s interest in prime brokerage has rapidly grown. mergers within the industry. Prime brokerage firms are not as heavily affected by this as would most independent hedge fund marketers. limiting capital introduction services. and widespread failures and redemption notices of hedge funds themselves.The Prime Brokerage Book Prime Brokerage Trends Article | TAAA About 7 weeks ago I wrote up a small article for the TAAAPs newsletter. To read the full newsletter. This has lead to widespread migrations between prime brokerage service providers and a trend towards managing multi-prime brokerage relationships for funds with over $500M in assets or even lower. and prime brokers acting as business partners to hedge fund managers.

"From where I sit in the fund-of-funds side. "Madoff was providing those numbers. Nobody dug a little bit deeper to see that PrimeBrokerageGuide.you have to check all the boxes. offering business plan and marketing plan startup tools.. Here are a few great quotes from this article: "The failure of the funds of funds that invested with Madoff was simply that they didn't do the due diligence that they ought to have done. New York and Hong Kong." says Rich Koppel. Prime brokerage firms are now publishing white papers.The Prime Brokerage Book being that prime brokers often take on and attempt to service more clients. a supplier of hedge fund technology that has offices in London.org 13 . This is due to the commoditized nature of the industry and high level of competition for new business. managing director at youDevise Ltd... I've looked at [Madoff's] return stream several times and rejected it [based] on my gut." Even though some of the underlying funds had third-party fund administrators.." . Infinity Capital's Vale speculates that the feeder funds "depended on the numbers that [Madoff's] underlying funds provided. and holding workshops and networking events to help hedge fund managers connect with additional business partners and investors. This had led to more selective capital introduction service offerings by prime brokerage firms and more frequent partnerships between prime brokerage firms and third party marketers in the industry.com PrimebrokerageAssociation.. even the thirdparty administrators appear to have accepted Madoff's numbers." Vale adds. The third major trend affecting the prime brokerage business is that more firms in the space are positioning themselves as business partners. Independent Fund Administration Tom Zita from Globe Op sent me an interesting article by Advanced Trading on independent fund administration and how fund of funds and investors will be requiring this more in 2009 than ever before. "It's checks and balances -.

org 14 .Beacon Hill Asset Management and the Manhattan Fund -. a London-based fund of funds manager with $2 billion in assets invested in 90 underlying hedge funds. Some banks are gaining over $1B a quarter in new assets while others are losing market share to those banks which appear to be less risky to hedge fund managers who are trying to lower counter-party risk. net asset value] and it's not being reconciled by a thirdparty administrator. "All the major classic frauds -.com PrimebrokerageAssociation. Here is the article excerpt: The collapse of Lehman Brothers last September was the flashpoint of a year that saw the prime brokerage world .". the new landscape offers a broad range of opportunities for the coming years... the London-based head of prime finance at Citi.. But for those funds and brokers that come through the turbulence intact. senior relationship manager at Key Asset Management." he warns. "The major red flags were to do with predominantly back-office issues. PrimeBrokerageGuide. ." adds James Freeman. [in which] the broker is the sole source of the quote [aka. "A bad investment process can lose you lots of money. "That's a deal killer for us. according to Nick Roe.along with that of its hedge fund clients . read the full article Prime Broker Market Share Changes Below is a short article on how the market share between prime brokers is changing." Vale claims." Vale continues. "There was no third-party firm at all looking at the numbers to verify even if they were real or correct. but a [bad] back-office business structure can lose you all of it.The Prime Brokerage Book those numbers were just coming from in-house.use that tactic." says Freeman. to send out false information because there is no record of it and you have no independent validation if the information is correct.transformed by the ongoing credit crisis and grisly economic backdrop.

As hedge funds are forced to innovate to produce returns in 2009 while also securing capital for distressed assets I believe this diversity will only increase over the next few years. 'I believe the regulations regarding rehypothecation will change.and as they have been battered by the storm two questions of "right" and "wrong" have been coming up that show that there are ethical codes at work here. Just this morning I found an interesting article on hedge fund ethics. 'But it won't go away. again it appears that the most challenging part of setting any code of ethics for the industry is that hedge fund manager are so diverse.com PrimebrokerageAssociation. but no agreement on what the "right" answer is.' he says. with prime brokers forced into much more transparency. And here's where the "ethical" questions come up: If your fund is down and you know it is going to take years to recoup the losses and get paid at 20% of profits again do you: PrimeBrokerageGuide. investments.org 15 . their operations.The Prime Brokerage Book While the hedge fund assets that were locked up in London after Lehman Brothers International (Europe) went into administration garnered headlines for a while.the use by prime brokers of hedge fund assets as collateral for the borrowing they need to provide funding to those clients. Roe argues that just as important was the spotlight turned on rehypothecation . and even scheduled life-spans are often drastically different from one fund to the next. because most hedge funds couldn't cope with the changed economic conditions if prime brokers weren't able to make use of some of their assets to deliver the required levels of funding.' source Hedge Fund Industry Ethics A few weeks ago I posted a note hoping to create a conversation around hedge fund industry ethics and best practices. Here is the article on hedge fund ethics: Hedge funds took a battering 2008 .

switch to a new fund.org 16 . Here it is: PrimeBrokerageGuide.do you: a) allow him to knowing that doing so could hurt the remaining investors that are staying in because you'll be forced to selling into a falling market? Much of the volatility in November and December was redemption selling as hedge funds were force to liquidate equities and debt so investors could withdraw funds. but maybe the second case makes sense if you can't climb back out from that fund. Or do you b) tell investors they can't take their money out and you are going to hold it until it is a more stable time to sell? Again this is a current raging debate in the hedge fund world that takes on the ethical language of right and wrong.working for "psychic income" as Kenneth Griffin of Citadel fame told the New York Times or b) leave . One of your investors wants to pull his money out . start a few fund . In the first case there's a moral high ground to climbing back out and keeping your commitments to your investors.The Prime Brokerage Book a) stay with the fund until you have recouped the losses and made your investors whole . Maybe you can't keep your key players or your strategy no longer works and your investors are better off with you closing the fund and returning their money. Again hedge funds are not acting consistently.basically start again? If you had many years of excellent performance before this one terrible year you may well be able to raise another fund. I know I'd want to be able to get my money out if I'd lost faith in a fund! source Prime Brokerage Services Q&A Question: What Services do Prime Brokerage Firms Provide? Answer: I recently found a detailed answer to this question within the Preqin Global Hedge Fund Investor book.com PrimebrokerageAssociation. The second question is whether to allow investors to take money out of the hedge fund.retire.

The Prime Brokerage Book Prime brokers provide trading and financing services to hedge funds. Some prime brokers will offer a physical capital introduction service arranging meetings and events where the managers are able to meet investors. Where are Prime Brokers Located? PrimeBrokerageGuide. It also earns money by hypothecating the portfolios of the hedge funds it services. any help would be appreciated. Capital Introduction Q & A Question: What are capital introductions services? Should our firm be using them? We are based in Miami. Answer: I recently found a detailed answer to this question within the Preqin Global Hedge Fund Investor book: Capital introduction is the service whereby the prime broker attempts to introduce its hedge fund clients to qualified hedge fund investors who have an interest in exploring new opportunities to make hedge fund investments.com PrimebrokerageAssociation. The prime broker is able to provide a centralized securities clearing facility for the hedge fund and then benefits by earning fees on financing the client‘s long and short cash and security positions and by charging fees for clearing and other services. Prime brokerage is the common name for the package of services offered by investment banks and securities firms to hedge fund and other investors allowing them to borrow securities and cash to be able to invest on a leveraged basis and achieve an absolute return.org 17 . This service is popular with hedge fund managers and can lead to new business for the prime brokerage firm. My background is in capital raising and I am now associated with a prime brokerage firm which offers capital introduction services. Others will partner with a third party marketer or offer a particular marketing plan to hedge fund managers who have not attempted to raise assets before. If you are looking for prime brokerage or capital introduction services please get in touch with our team and we will help as we can.

Single primed funds that had been slow to embrace the new multi-prime world are now highly motivated to reduce counter-party risk by establishing multiple custodial relationships. These statistics were taken from the recently published 2009 Preqin Global Hedge Fund Investor Book. Here are the numbers: 74% of firms were based within the United States 13% in London 3% in Canada 2% in France 2% in Poland 2% in India 2% in Russia 2% in Germany I found the Russia. A Guide to Overcoming the Operational Challenge of Multi-Prime Brokerage Introduction The ongoing market turmoil.com PrimebrokerageAssociation. It begins by describing PrimeBrokerageGuide. Germany and France numbers to be surprising.org 18 .The Prime Brokerage Book Question: I am looking to work with a local prime brokerage firm. I was also surprised that Asian countries didn‘t break 2-4% of this list. and the doubts surrounding the leading primes have accelerated the demise of the already faltering single prime brokerage model. Perhaps this has to do with regulations and fund structures and terms used within that area of the world. do you know where most of them are located? Answer: Within a recent survey of prime brokerage firms I found some interesting statistics on prime brokerage firms. the bankruptcy of Lehman Brothers leaving $65 Billion in frozen hedge funds assets. This guide explores the different options available to a single primed fund that is making the leap to multi-prime.

The 3 Building Blocks of a Multi-Prime Solution 1 . accurate and timely data.com PrimebrokerageAssociation. since the data are so critical to so many constituencies it must be flexible enough to meet the specific needs of everyone across the firm.An effective allocation process ensures that the PMS has the ability to 'slice and dice' views and reports in a manner that is PrimeBrokerageGuide. across multiple primes. which allows the fund to understand key measures such as P&L. At the heart of all multi-prime solutions is the portfolio management system (PMS). performance. views and reports. The Operational Challenge of Multi-Prime Once a fund accepts the necessity of multiple prime relationships there quickly follows the realization that there is a cost associated with this new model. This cost. the COO. and concludes with a recommendation. then weighs the pros and cons of today's multi-prime solutions. global securities. At the very core of this complexity is the requirement to collect and aggregate the disparate cash. Likely users include the trader. and derivatives. the portfolio manager. which is in the form of operational complexity and the need to acquire middle and back-office functionality. and transaction information. the CFO.org 19 . Additionally.The Prime Brokerage Book the nature of the operational challenge. Operations and indeed ultimately external investors. all across multiple timezones. the compliance officer.Allocation . the middle and back-office must now be capable of handling multi-currency. Before we explore the attributes of the multi-prime PMS let's briefly look at the three key building blocks necessary to ensure that the PMS displays relevant. Further complicating matters is the certainty that as the expanded search for alpha continues to drive funds far beyond their domestic long/short equity roots. position. Once the data are captured and reconciled the fund must then be able to present the data in real-time and historical. Much consideration must be given to how a firm deals with this operational challenge since many of the available solutions involve a fund going in a direction that risks distracting them from their central purpose of alpha generation. had been borne by the prime in the single prime model. exposures and risk.

To further complicate the process.The subject of data capture becomes particularly important in a multi-prime environment. An example would be a CFO who would like to understand the P&L attributed to a particular portfolio manager. a robust security master must be at the core of the data capture process.com PrimebrokerageAssociation. It is imperative that the solution can send and receive the file formats demanded by primes. Ideally the process is automated and ensures that differences or exceptions between the various parties are discovered and corrected as soon as possible. In addition. At the highest level it involves a process of identifying and categorizing trades down to the tax-lot level. executing brokers and market data vendors. -Reconciliation (and Exception Processing) .org 20 . fund administrators. XML.Data Capture .The reconciliation process ensures the accuracy of the firm's data and involves the fund comparing what it understands to be its trading activity with the records of other counter-parties. Allocation is usually handled by an Order Management System (OMS). The security master ensures that data across multiple primes is normalized so as to allow seamless integration. who is associated with a specific strategy within a particular fund. Once these errors are discovered the PMS should have the ability to unwind the error in a one-step process. PrimeBrokerageGuide. It is vital that the OMS and PMS share the same allocation methodology or the reporting flexibility of the PMS will be compromised.The Prime Brokerage Book sufficiently flexible to meet the information needs of the particular end user. Once these positions have been correctly categorized it becomes possible for the PMS to generate reports based on these categories. Formats such as flat-file. The data that the PMS displays will only be as good as the quality and the timeliness of the information flow between the relevant counter-parties. . SWIFT and increasingly FIX are prerequisites for any modern solution. More sophisticated allocation methods allow for a layered approach so that reporting can be multi-leveled. The data can be quickly viewed assuming that the allocation has been correctly completed and that the PMS is capable of this multi-tiered reporting. such as the primes or the fund administrator. a security master that includes independent corporate action verification will serve as a check and balance to the primes‘ corporate action reporting.

Legacy PMSs that were built in a "T+1" world cannot reflect the real-time effect of trade execution on performance and risk because they cannot accept FIX messages. the biggest demand placed on the PMS by this new complex multi-prime world. The first hedge fund PMSs that emerged 20 years ago were essentially re-purposed vendor solutions from the long-only asset management industry. and is critical in a multi-prime environment. Arguably.com PrimebrokerageAssociation. To understand this we only need to look at how FIX has dramatically increased the flow of trading information into and out of the front office. Only a PMS built around a FIX engine can offer data that is updated both tick-by-tick and execution-by-execution. (For a complete depiction of the typical workflow of a real-time multi-prime solution please see Figure 1 on Page 6) Today's Multi-Prime Solutions PrimeBrokerageGuide.org 21 . This urgency of information flow is now making its way to the middle and back-office. with varying levels of success. Many legacy systems struggle with this real-time requirement because their architecture pre-dates the widespread adoption of the FIX protocol. This query able repository of a fund's activity is used as a tool to understand how successful a fund's alpha generation efforts have been in terms of performance and risk. This is particularly true in light of today's market volatility. Funds today require a real-time understanding of their strategies' performance and risk. Alpha has become increasingly fleeting in nature and funds now must be able to respond instantly to changing market conditions. It is no surprise that the evolution of the PMS has mirrored (and in many cases lagged) the evolution of the hedge fund industry. As funds push beyond domestic long/short equity strategies these same vendors have responded. and the demand that legacy systems most struggle with. multi-market and multiasset class. by grafting on the functionality required to support multi-currency. is the requirement for true real-time views of data.The Prime Brokerage Book The Portfolio Management System in a Multi-Prime World The PMS has always been the most important hedge fund application because it is responsible for generating its books and records.

There are. Finally. hearsay does not sufficiently reduce a firm's dependence on a single prime. First. Factor in the possible resentment of the prime offering the service it is not surprising if accuracy suffers.com PrimebrokerageAssociation. a number of significant drawbacks to this approach. not many primes are willing to play the role of "the prime of primes". Not much changes for the hedge fund. Prime Broker (Outsourced) . They continue to receive their familiar reports but now including an aggregated view of all their relationships."Hearsay Reporting" . Let's look at the four most popular solutions available today. as the fund adds more and more primes the original prime will find it less compelling to offer the service. and are willing to live with less control typically choose a less costly outsourced solution.A subcategory of the Prime Brokerage industry is a PrimeBrokerageGuide. funds typically face a tough trade-off. Anecdotal evidence suggests that the top tier primes are not willing to offer this service unless a fund has at least $1 Billion in assets.The Prime Brokerage Book Various industry players have sought to offer a solution to the operational burden of multi-prime.org 22 . Third. however. Second. Additionally. hearsay is a very manual process and is only as good as the data received. In choosing one of these solutions. which at its most basic level involves a choice between cost and control. This is because most hearsay solutions rely on legacy PMSs that are based on a T+1 process and therefore cannot offer a real-time understanding of P&L and Risk. from the hedge fund's perspective.Hearsay reporting is when one prime (usually the original prime) agrees to accept and aggregate the trading files from other primes on to their reporting platform. Funds that have more resources and demand complete control of their data take the time and expense to buildout an onsite system. this solution only goes part of the way to solving the reporting problem. Hedge funds that do not have the financial and human resources. The advantage to this approach. Primes that offer this service will weigh up whether retaining a now smaller portion of a fund's business is worth taking on the cost of the very manual task of hearsay reporting. Mini-Prime Broker . is that the original prime shoulders all the operational complexity of going multiprime. Any problems associated with the prime offering the hearsay reporting will mean that the fund will have to scramble to replace their reporting infrastructure.

many fund admins have moved in the direction of offering outsourced middle and back office services. suffer from many of the drawbacks of their larger brethren. They typically use the clearing services of larger institutions and traditionally served the funds that the bulge-bracket primes deemed to be too small or risky.The fund admin would appear to be the obvious candidate to provide a multi-prime aggregation service. The reason for this is that the vast majority of admins rely on the legacy portfolio management systems mentioned above and therefore struggle with flexibility and in particular the ability to offer true-real time P&L and risk. This is particularly true for firms that relied heavily on Excel to augment the reporting capabilities offered by their original single prime. It is true that Excel is a very flexible tool but there are many drawbacks to this approach. is that there exists a cultural mismatch between the accounting mindset of the fund admin and the trading mindset of many of the hedge funds they seek to service."Middle and Back Office" . (Tri-Party Arrangement . One. The typical complaint is that the reporting provided by the admin is just not flexible or timely enough for many hedge funds. Indeed. Microsoft Excel (Onsite) – Some firms attempt to overcome the operational complexity of multi-prime by using Excel. traditionally the admin is responsible for aggregating all of a fund‘s activities to produce monthly financial statements and NAV calculations.com PrimebrokerageAssociation. however. Finally. To date.) Fund Administrator (Outsourced) .org 23 . Their value proposition has been around better service at lower cost for the little guy. After all. This involves a fund maintaining its long positions at custodial banks while using a prime or primes for stock loan and leverage. The turmoil surrounding the leading primes has meant a mass exodus of many smaller funds towards these mini-primes. It is mentioned here because this model is becoming an increasingly popular way for funds to diversify their counterparty risk. and a not to be underestimated factor. quite simply. these offerings have not been met with great enthusiasm from the hedge fund community. Some of these mini-primes offer relatively robust hearsay reporting. the days of an investor willing to write a $50 million check to a fund that has no formalized PrimeBrokerageGuide.The Prime Brokerage Book group known as the Mini-Primes. however.Another variant of the prime model is a hybrid between a custodial bank and a prime brokerage. They.

OMS and increasingly an execution management system (EMS). As funds embrace the world of multi-prime they are discovering that the accompanying operational burden must somehow be addressed. by combining the best attributes of the outsourced and onsite models. It places the FIX enabled portfolio management system at the very heart of all of a hedge fund's activities.The Prime Brokerage Book infrastructure are long since gone. Two. integrate and maintain these disparate legacy systems. Three. This single real-time database architecture ensures that everyone in the front. middle and back office shares access to the same real-time and historical information displayed in a form specific to their role. Investors now spend almost as much time doing operational due diligence as they do research into a firm‘s risk and return profile. There are a number of competing solutions available to this problem. With all this a fund may still find that the data that they demand are still elusive and that a considerable amount of time has been wasted in building a competency in technology when the firm‘s primary focus should have been alpha generation.com PrimebrokerageAssociation.org 24 . Conclusion The credit crisis has brought home to the hedge fund community the risks associated with the captive single prime broker model.Nirvana Solutions Nirvana Solutions‘ purpose built approach for hedge funds dispenses with the usual trade-off between cost and control. funds however. This comes at a considerable cost and usually involves hiring a team of technologists to implement. all made available through the Software as a Service (SaaS) deployment model. Legacy (Onsite) . Furthermore the SaaS model ensures that a firm‘s focus remains on alpha generation and not on IT support.For ultimate control of their multi-prime data a fund typically feels that their only option is to acquire an onsite PMS. funds that delay implementing a viable long term solution will find that Excel becomes engrained in their workflow and that over time more and more internal resources will be expended just to maintain this sub-optimal solution. Excel is not built to handle real-time decisionmaking. must realize PrimeBrokerageGuide. A New Approach . It involves a single integrated solution that includes a real-time portfolio management system built around a trading engine.

The Prime Brokerage Book that the capabilities of these solutions vary greatly. news and trend notes on hundreds of hedge fund managers. and in the amount of IT support required.com PrimebrokerageAssociation. particularly in terms of their ability to offer true real-time views of P&L and Risk. Hedge Fund Managers | Manager Profiles & Notes Below is a tool developed by HedgeFundBlogger. Hedge Fund Manager Tracker Profiles: Abax Global Capital Management Absolute Capital Artradis Fund Management Management | Jonathan LP Treacher Asset Management Finance Acorn Capital Group Corp AguasClaras Investimentos Atticus Capital Alternatives Derivatives & Autonomy Capital Research.com.org 25 . Both of these factors are now critical in this new era of increased volatility and depressed returns. which provides profiles. Investments (ADI) LLP Analytix Capital Avenue Capital Group Anchor Point Capital LLC | Babylon Fund LP | Hedge Albert Hsu Case Fund Notes Andor Capital Management & Balyasny Asset Management Daniel Benton LP Angelo Gordon Barington Capital Group LP | Appaloosa Management Hedge Fund Notes Aquiline Capital Partners Bessent Capital Arcanum Capital BlueCrest Capital PrimeBrokerageGuide.

LP Eclectica Asset Management Ellington Management Epic Capital Management LP Eurasia Capital Management ESL Investments | Edward Lampert Farallon Capital Management Partners LP Financial Risk Management (FRM) Investment Management First State Investments | Media Works Fortelus Capital Management Fortis Investments Hedge Fund Fortress Investment Group LLC Four Elements Capital Management Four Elements Capital Management. LP Goldman Sachs Hedge Fund Goldman Sachs Hedge Fund Launch Gottex Fund Management 26 PrimebrokerageAssociation.The Prime Brokerage Book Blue Mountain Capital Managment. LLC DE Shaw Group Diapason Commodities Management SA | Commodity Management Drake Capital Management LLC Drury Capital CTA Fund Durrant Capital Management. LP Cambridge Place Investment Management Carlson Capital Management Partners LP | Hedge Fund Notes Centaurus Capital Cerberus Capital Management LP CF Partners | Carbon Hedge Fund Chenavari Credit Partners LP Cheyne Capital Children's Investment Fund Management TCI Citadel Investment Group LLC Clarium Capital Management | Peter Thiel Clinton Capital Management LP | Hedge Fund Notes Connexion Capital Creditor Liquidity Solutions LP CQS Capital Dalton Strategic Partnership PrimeBrokerageGuide.com Davidson Kempner Capital Deephaven Capital Management.LP BlueBay Asset Management Bonanza Master Fund LP | Hedge Fund Notes Boussard & Gavaudan Bramdean Asset Management Brevan Howard Bridgewater Capital Brotman Capital Management Hedge Fund Brummer & Partners.org .

LP New Star Asset Management OakRun Capital LLC Och Ziff Capital Management Group Olympia Capital Management Oracle Evolution Oracle Services | Spiro Germenis Ospraie Management LLC Oxford Funding Corporation Palatine Asset Management Paskewitz Asset Management Paulson Invesment Company Pequot Capital Management Hedge Fund Perry Capital Pershing Square Capital Management Pharos Fund Pirate Capital Platinum Asset Management Platinum Grove Asset Management.org .com Millennium Partners Mitsui & Co. LP Powe Capital Management LP | Rory Powe Priapus Investment Fund LLC Psigma Investment Management Pure Capital LP Quadrangle Group LLC R3 Capital Partners LP RAB Capital Plc Rady Asset Management 27 PrimebrokerageAssociation. Moore Capital Management. Juridica Investments Kenmar Group K2 Advisors Lansdowne Partners | Paul Ruddock Lasair Capital LP Lawrence Asset Management LP L & G Investment Management Lucas Capital Management Man Investments Group Martin Asset Management Maverick Capital LP MedCap Management and Research | Charles Toney Metropolitan Capital Advisors PrimeBrokerageGuide.The Prime Brokerage Book Greylock Capital Management Halcyon Asset Management Harbinger Capital Partners Hedge Fund Headline Investment Management Hedge Fund BullDog Fund Sues SEC Henderson Group PLC Highbridge Capital Management LLC Highland Capital Management Jabre Capital Partners SA | Philippe Jabre Jana Partners | Hedge Fund Notes JO Hambro Capital Management Ltd.

org 28 . Ltd Bret Barakett SRM Global Tudor Capital Steelhead Partners LP Vallea Capital Sugarloaf Rock Capital Veritas Asset Management System Absolute Return Viresco International Capital (SAR) Management T2 Capital Partners Viking Global Investors Tai Tam Capital Vision Capital Tantallon Capital York Capital Temujin Global Asset Management Fund of Hedge Fund Tracker Profiles Eucalyptus Investment Funds Prime Brokerage Business | Wikipedia Quick Link: Hedge Fund Prime Brokers Prime brokerage is the generic name for a bundled package of services offered by investment banks and PrimeBrokerageGuide. LP The NIR Group LLC | SageCrest LLC Alternative Investments Sageview Capital LLC Hedge Fund Notes Sandell Asset Management The Spanish River Group Corporation Threadneedle Asset Salida Capital | Hedge Fund Management | Hedge Notes Fund Notes Satellite Asset Management Tontine Associates Sciens Capital Management TPG-Axon Capital LP Trafelet & Co.The Prime Brokerage Book Ramius Capital Group LLC Tenaska Capital Management Renaissance Technologies LP | Hedge Fund Notes Ritchie Capital Thames River Capital RMB Asset Management The Blackstone Group | Kailix International | Tom Joy Advisors SAC Capital Advisors.com PrimebrokerageAssociation. Sellers Capital Traxis Partners LP Sloan Robinson Tremblant Capital Group | Sparx Group Co.

 Office Space Leasing and Servicing . fees for clearing and/or other services.The provision of risk analytic technology. and the hedge fund's collateral requirements are netted across all deals handled by the Prime Broker. The Prime Broker benefits by earning fees ("spreads") on financing the client's long and short cash and security positions.com PrimebrokerageAssociation.  Consulting Services .A range of consulting / advisory services. in some cases.The Prime Brokerage Book securities firms to hedge funds and other professional investors needing the ability to borrow securities and cash to be able to invest on a leveraged basis and achieve an absolute return. and by charging.A process whereby the prime broker attempts to introduce its hedge fund clients to qualified hedge fund investors who have an interest in exploring new opportunities to make hedge fund investments. It also earns money by hypothecating the portfolios of the hedge funds it services and charging a fee to those borrowing securities and other investments. custody.  Risk Management Advisory Services . These prime brokers typically provide a suite of on-site services for clients who utilize their space. and asset servicing)  Securities lending  Financing (to facilitate leverage of client assets)  Customized Technology (provide hedge fund managers with portfolio reporting needed to effectively manage money)  Operational Support (prime brokers act as a hedge fund's primary operations contact with all other broker dealers) In addition. The business advantage to a hedge fund of using a Prime Broker is that the Prime Broker provides a centralized securities clearing facility for the hedge fund.Certain prime brokers lease commercial real estate. which may include some or all of the following:  Capital Introduction . and then sublease blocks of space to hedge fund tenants. PrimeBrokerageGuide. The following services are typically bundled into the Prime Brokerage package:  Global custody (including clearing. sometimes supplemented by consulting by senior risk professionals. certain prime brokers provide additional "value-added" services.org 29 .

History The basic services offered by a prime broker give a money manager the ability to trade with multiple brokerage houses while maintaining. In addition. broker-dealer Furman Selz in the late 1970s.com PrimebrokerageAssociation. Lehman Brothers. However. The first non-U. prime brokerage business was created by Merrill Lynch's London office in the late 1980s. Additionally. These services worked because they also allowed the money manager to maintain relationships with multiple brokerage houses for IPO allocations. domestic long-short equities funds. the first hedge fund operation is attributed to Alfred Winslow Jones in 1949. and Goldman Sachs. best execution. At this nascent stage.S. In the pre-prime brokerage marketplace. in a centralized master account at their prime broker.S. prime brokers supplemented their PrimeBrokerageGuide. as well as in the jurisdiction(s) where the fund itself will be domiciled. consolidated cash management and other services. portfolio management was a significant challenge. hedge funds were much smaller than they are today and were mostly U. money managers had to keep track of all of their own trades. Merrill Lynch. and focused on issues associated with regulatory establishment requirements in the jurisdiction where the hedge fund manager will be resident. although various prime brokers did supplement their core equities capabilities with basic bond clearing and custody. consolidate their positions and calculate their performance regardless of which brokerage firms executed those trades or maintained those positions. research. prime brokerage was largely an equities-based product. The concept and term "prime brokerage" is generally attributed to the U. The concept was immediately seen to be successful. all of the hedge fund‘s cash and securities.org 30 . Fundamentally. and was quickly copied by the dominant bulge bracket brokerage firms such as Morgan Stanley. Through the 1980s and 1990s.S. Bear Stearns. conference access and other products. the advent of the Prime Broker freed the money manager from the more time consuming and expensive aspects of running a fund. portfolio reporting. the prime broker offers stock loan services.The Prime Brokerage Book typically provided to "start-up" hedge funds.

Rather. The financing and lending spreads.org 31 . Over the years. then by fax and today over the web. prime brokers have expanded their product and service offerings to include some or all of the full range of fixed income and derivative products. prime brokerage has become an increasingly competitive field and an important contributor to the overall profitability of the investment banking business. the most successful investment banks each report over two billion dollars in annual revenue directly attributed to their prime brokerage operations (source: 2006 annual reports of Morgan Stanley and Goldman Sachs). and synthetic financing products such as swaps and CFDs (Contract for difference). make up the vast majority of prime brokerage revenue. Risks Prime Brokers facilitate hedge fund leverage. Fees Prime brokers do not charge a fee for the bundled package of services they provide to hedge funds. As of 2006. and the client is unable to repay the deficit. which are charged in basis points on the value of client loans (debit balances). foreign exchange (fx). the Prime Broker is exposed to the risk of loss in the event that the value of collateral held as security declines below the loan value. Therefore. client deposits (credit balances). as well as foreign exchange and futures products. Clients whose market activities are principally fixed income oriented will generally produce less prime brokerage revenue. primarily through loans secured by the long positions of their clients. In practice.com PrimebrokerageAssociation. and flow business areas of the investment bank. As hedge funds have proliferated globally through the 1990s and the current decade. initially by messenger. but may still present significant economic opportunity in the repo. futures. trading commissions and fees for the settlement of transactions done away from the prime broker. revenues are typically derived from three sources: spreads on financing (including stock loan). clients who undertake substantial short-selling or leverage represent more lucrative opportunity than clients who do relatively less short selling and/or utilize minimal leverage. such conditions arise PrimeBrokerageGuide. client short sales (short balances).The Prime Brokerage Book operational function by providing portfolio reporting. In this regard.

Credit Suisse. Other forms of risk inherent in Prime Brokerage include operational risk and reputational risk.org 32 .com) Recently hedge funds have been moving some assets away from investment banks which specialize in providing a relatively narrow number of products to broader diversified banks which are more secure in earn money in hundreds of different ways. Here is a recent article on this topic: PrimeBrokerageGuide. Stress testing entails running a series of what-if scenarios that identify the potential gains or losses for each position due to adverse market events. Large prime brokerage firms today typically monitor the risk within client portfolios by either Value at Risk (VaR) or "Rules Based" stress testing. The list of top prime brokers by the end of 2009 could look very different than it did just this last year. Some of these firms to recently benefit have been BNP Paribas. Fidelity. These larger banks often make money by catering to both institutional and retail clients and are less likely to fail. and Deutsche Bank (view our list of prime brokers on the right hand side of PrimeBrokerageGuide.com PrimebrokerageAssociation.com). As counterparty risk management and multi-prime brokerage both grow in popularity this trend will only increase.The Prime Brokerage Book only in the case of extraordinary volatility or unexpected correlation reversions and are exceedingly rare. Examples of stress test scenarios include: * Flight to Quality * 1% up or down parallel movement in 10-year treasury yield curve Retrieved from Wikipedia Prime Brokerage News Large Banks Win Business (PrimeBrokerageGuide.

saw balances in its prime brokerage unit grow 50-60 percent last year compared with 2007. Prime brokers make money by charging hedge funds fees for providing financing for trading and settlement of trades. What needs more PrimeBrokerageGuide. said: "There was a peak in terms of business in September and October.The Prime Brokerage Book Broker-dealers such as Morgan Stanley and Goldman Sachs are losing out in the battle for hedge funds' dwindling pool of assets." said Berstein Research analyst Brad Hintz in a note. The collapse of investment bank Lehman Brothers (LEHMQ. the bank's head of international prime services. Morgan Stanley and Goldman.PK) in September shocked hedge funds.. led many hedge funds to flee the two largest prime brokers. a source familiar with the business said. has also benefited from an influx of business in its prime brokerage in the last six months. whose operations include a large wealth management unit as well as prime broking." Deutsche Bank (DBKGn. as those with accounts at Lehman when it sought bankruptcy protection had those assets frozen and risked being unable to close trades.. as funds seek out banks with diverse sources of funding in a major shake-up of prime broking. "The Lehman bankruptcy . Roy Martins.org 33 .VX).DE).com PrimebrokerageAssociation. backed up by its big retail bank. source Counterparty Risk Management | Counter Party Risk It goes without saying that counterparty risk management has become more important to look at for just about everyone in the industry. Credit Suisse (CSGN. All the clients we took on had existing relationships and dialogues with us as they were clients we had been targeting anyway. for the perceived safety of the universal banks. a source close to the bank said.

such as a triparty account approach * Conducting consistent internal portfolio and risk assessments * Formalizing business processes by outsourcing and installing inPrimeBrokerageGuide. The development of a standardized. An overwhelming 96% of respondents also cited managing counterparty risk as the number one factor in selecting their prime broker relationships.Effectively monitoring counterparty risk will continue to be a critical component of a hedge fund's business operations. Key findings from the study include: • Hedge Funds Increase Scrutiny On Managing Counterparty Risk -Counterparty risk monitoring has become a significant part of overall business operations.The Prime Brokerage Book discussion is exactly how to conduct and assess counterparty risks. More than 50% of respondents reported monitoring counterparty risk on a daily basis and nearly 85% consider it an extremely important or very important business issue. One of the major drivers for heightened attention to managing counterparty risk are hedge funds' concerns about the negative impact it could ultimately have on their firms' operations should one of their key counterparties default on their obligations. It also highlights best practices that have been implemented by other hedge funds to help address and mitigate counterparty risk. Concerns about managing counterparty risk two years ago were not a primary issue for most hedge funds. • Counterparty Risk Management Must be Tackled Directly and Systematically -. Here is an article on this topic: Risk and Reward: Hedge Funds Changing Views on Counterparty Relationships. as 26% of the respondents considered counterparty risk important and 22% viewed it as moderately important.org 34 . well-documented approach to analyzing counterparty risk remains one of the top priorities for the hedge fund community. Best practices for proactively managing counterparty risk include: * Leveraging innovative services from prime brokers. focuses on the heightened importance of effectively managing counterparty risk and the integral role it plays in partnering with a prime broker.com PrimebrokerageAssociation.

Read the full article Top 3 Technology Trends for Hedge Funds in 2009 Below is a short guest post by Peter Curley of Nirvana Solutions: The turmoil that hedge funds have experienced in the last few months will ultimately have a significant impact on the technology and the infrastructure supporting this industry. the need to aggressively cut costs will trump these PrimeBrokerageGuide.org 35 .com PrimebrokerageAssociation. and less likely to focus on any one strategy or asset class. The trends we will witness in 2009 will primarily be the result of the following drivers:  Increased cost consciousness . Funds preferred to build out their own middle.  The new requirements of the next generation of hedge funds These funds will be smaller. more opportunistic. for many funds.The Prime Brokerage Book house technology solutions such as portfolio management systems * Implementing third-party independent valuation technology solutions and service providers supplemented with in-house valuation tools.This will be true for both new and more established funds.There is no silver bullet for hedge funds when attempting to actively monitor the balance sheets of important counterparties despite the growing concerns over counterparty risk management. Three technology trends for 2009: 1 – Outsourcing – Historically hedge funds have resisted efforts to outsource. and • Adoption of Technology -.and backoffice functions citing concerns around flexibility and privacy. Now.  Market volatility .All indications are that 2009 will continue to be as volatile as the latter half of 2008.

PrimeBrokerageGuide. The leading primes can no longer be profitable in this new world of multi-custodial relationships.org 36 . except the very largest.The Prime Brokerage Book concerns and force outsourcing. execution management systems). As noted earlier. All hedge funds. taking a step back we can see that there has always existed incredible duplication of effort across the hedge fund eco-system. With the demise of the captive single prime model we are now seeing the top-tier primes retreat up-market to focus their efforts on servicing funds with greater than $1 billion under management. 2 – Restructuring of the industry's service providers. real-time portfolio management systems and risk management systems).e. The industry can no longer support this duplication. will begin to look to third-parties to offload this operational burden. hedge fund managers can no longer afford to rely on systems that offer "T+1" reporting. that once an investment decision has been implemented. and 2/ systems.com PrimebrokerageAssociation. Increasingly we will see the desktop of a hedge fund trader/portfolio manager feature only 2 types of real-time FIX based systems: 1/ Those connected to implementing the investment decision (i. all conduct the same processes using the same legacy "T+1" portfolio management systems. 3 – Real-Time systems – In this new world of opportunistic alpha. In many cases hedge funds. The new mini-prime offering is still evolving but will likely offer a complete multi-prime brokerage service platform that in some cases will also include hedge fund administration. These all-in-one multi-prime service platforms will be especially critical to the regeneration of our industry because they will act as the entry point for 100's of the new spin-off funds that are expected to form in 2009. The biggest news here will be rise of the mini-primes. can offer a real-time understanding of risk and return (i. and fund admins.e. legacy technology that can only offer this type of end-of-day and end-of-month reporting will become less relevant and ultimately be outsourced to third-parties. Hedge fund's instead will focus their resources on real-time systems that can aggregate risk and return across multiple prime relationships and multiple asset classes. prime brokers. Interestingly. This leaves the lower-cost-structure mini-primes ideally positioned to fill the void.

This white paper claims that the benefits of adding a second prime broker include:  Mitigation of risk: counterparty. giving greater direct operational control This full white paper may be read here.org 37 .The Prime Brokerage Book Article contributed by Peter Curley of Nirvana Solutions. Nirvana Solutions is a San Francisco based software company that provides real-time portfolio management solutions to multi-prime hedge funds and prime brokers. Bernard Madoff Not a Hedge Fund | No Prime Brokerage Services Just came across another post on the Madoff PrimeBrokerageGuide. Founded in 2006.  Ensure optimal financing through competitive pricing of margin lending and stock loan  Gain access to competitive or innovative cross-margining policies of the competing prime broker  Leverage across the relative strengths of service providers in synthetic financing. capital introductions. etc. financing. Adding a Second Prime Broker While looking for a client document online I found a white paper on prime brokerage which discusses the use of multi prime brokerage firms by a single hedge fund. swap trading or market access  Catalyst for reduced dependency on outside service providers.com PrimebrokerageAssociation. liquidity and operational  An additional source of alpha-generating trade ideas.

Due diligence is an alpha source itself.The Prime Brokerage Book fraud case. Lehman borrowed the assets and lent them out. Prime Brokerage Risk Prime Brokerage Risk | Risks of Single Priming Below is a short excerpt from an article I found on why hedge funds are now working with multiple prime brokers at one time. Where the Industry Is Now: Most hedge funds with more than $250 million in assets have relationships with two to four primes. I believe this model will become even more important in 2009 and possibly become a required checkbox for investments from many institutional investors or a green light from institutional consultants. read more. "There are people who either had long assets on deposit and can't get them back or. hedge funds that had prime brokerage relationships with these firms were exposed to significant counterparty risk.org 38 . Why It's Important: With the demise of Bear Stearns in March 2008 and the bankruptcy of Lehman Brothers this past September. And portfolio diversification with NUMEROUS strategies and managers is mandatory.. worse. here is an excerpt: Bernie Madoff was a stock broker "managing" client accounts. proper auditor or independent administrator. Few professional investors invested directly with so many red flags in abundance. This article is by Veryan Allen.. His firm was "regulated" and fraud is already illegal. He did not charge 2 and 20 and had no prime broker. driving some to liquidate securities to meet redemption calls from investors and even forcing some out of business. He was never part of the hedge fund industry. which are PrimeBrokerageGuide." explains Larry Tabb. Some hedge funds that primed with Lehman had their assets frozen as part of the European bankruptcy proceedings against Lehman. founder and CEO of TABB Group.com PrimebrokerageAssociation.

.org 39 . If you are conducting due diligence on prime brokers or about to sign a contract with one it may make sense to look at this example contract just to get a sense of what to expect or negotiate. The problem the high-cost-structure leading prime brokerage firms now face is that without the assurance of the captive single prime model the economics of servicing smaller funds no longer makes sense. Funds of all sizes now demand multiple custodial relationships. New Prime Brokerage Model Emerging The credit crisis and the subject of counter party risk is proving to be the f final nail in the coffin for the hedge fund industry's single prime brokerage model.g. stock loans and clearing. This reality combined with the primes' decreased risk tolerance means that we are seeing a mass exodus away from the top-tier primes.com PrimebrokerageAssociation. FX or derivatives) or geographies. source Prime Brokerage Agreement | Contract Example While looking for a white paper on prime brokerage I stumbled upon an example prime brokerage services contract. margin accounts. Anecdotal evidence suggests that these primes are now in the process of weeding out clients that manage less than $100 PrimeBrokerageGuide. typically launch with a single prime broker that may provide trading systems. with $10 to $15 million in AUM. however. For smaller hedge funds. Smaller hedge funds.The Prime Brokerage Book picked for their trading expertise in certain asset classes (e. such as Europe or Asia. To view the example prime brokerage agreement please click here. diversifying can be difficult because the large prime brokers have minimum-asset requirements and other constraints to weed out the smaller players.

This regeneration process is vital to the health of the industry and for many investors. capital will begin to flow out and ultimately investment talent will go in search of new opportunities.org 40 . Interestingly we are also seeing a number of new entrants to this expanded segment of the prime brokerage industry.The mini‘s still use the clearing services of their larger prime broker brethren.000. Two important differences remain: 1 . technology infrastructure etc. These are for the most part more traditional brokers who see an opportunity to increase the stickiness of their execution services. it is the promise of catching a smaller fund during this growth phase that motivates them to invest.The Prime Brokerage Book million or that do not generate annual revenues of at least $250.com PrimebrokerageAssociation. returns will continue to suffer. It is no secret that size kills alpha. Historically the group charged with picking up the crumbs left by the leading primes was a group known as the mini-primes.Who will fill the void and offer prime services to the lower end of the market? Who will provide the financing. necessary for smaller funds to generate alpha? Before we answer this question let‘s take a moment to think about why this smaller hedge fund segment is so key to the future success of the industry. Funds whose strategies involve less liquid securities and/or high leverage are now finding the bar set much higher. and 2 more importantly. If they are not lucky enough to find another successful strategy. Many successful funds follow a familiar arc. This retrenchment by the leading prime brokers raises the obvious questions . their cost-structures evolved in a way that allows them to offer prime services profitably at this lower end of the market. as they grow in size their primary strategy reaches capacity and they experience a leveling off of returns. PrimeBrokerageGuide. This term is rapidly becoming obsolete as the mini-primes now find themselves expanding their offerings to attract the funds that have been displaced. as well to develop new revenue streams. stock loan. We are also witnessing primes becoming more selective about what type of funds they are willing to service. by building out a prime brokerage offering. They gain attention (and funds) by earning outsized returns.

causing an increasing number of hedge funds to block investors from redeeming shares (see NY Times article). will cause additional funds to close. after a drop of 9.org 41 .26 percent in October (see FIN Alternatives article). The winners will be the firms that understand that the new economics of prime brokerage demand a new industry infrastructure. approximately 100 hedge funds have placed restrictions on withdraws. As of the end of last week.com PrimebrokerageAssociation.04 percent in November. High-water marks. The increased addition of illiquid investments over the years (such as real estate and private equity) has caused many funds to start considering a new model that would require longer lock-up times for lower fees. Article contributed by Peter Curley of Nirvana Solutions Gating Clauses & Lock Up Periods for Investors Hedge Fund Research's Global Hedge Fund Index was down 3. as well as real-time views of critical data such as P&L and Risk. such as Fortress PrimeBrokerageGuide.3% YTD through November. The increased use of gates has even spread to some of the previous stars of the industry. That brings the index down 22. This restructuring of the prime model will ensure the health of the industry by continuing to offer a relatively low barrier of entry to the all important small hedge fund segment. in what is becoming a financial roach motel where investors can check in. but they cannot check out (see Bloomberg article). right to the desktop of the hedge fund. which would force some under-performing funds to earn back 25 percent or more before taking profit fees. This prime infrastructure will rely heavily on cost-effective technologies that can offer aggregated multi-prime reporting. Continued poor performance has increased redemption requests. although others insist they will take the high road and not close until they are profitable again.The Prime Brokerage Book Only time will tell who will be successful in this greatly altered landscape of prime brokerage.

Shaw & Company (see WSJ article). The top three trends affecting the prime brokerage industry right now are multi-prime brokerage relationships. which continue to under-perform and are down an additional 1. No doubt many large investors with liquidity will be able to throw their weight around in a similar way as they begin renegotiating lower fee structures in return for longer lockup periods.org 42 .. Many prime brokers are also seeing this as an opportunity to drop clients or renegotiate terms that were originally in favor of the large hedge funds who previously had bargaining power.E. limiting capital introduction services. In the past this was almost though of as unnecessary as no large investment banks offering prime services PrimeBrokerageGuide. and D. even with new gating restrictions. by Davide Enke Top 3 Prime Brokerage Trends Over the last two years the mainstream media‘s and general public‘s interest in prime brokerage has rapidly grown. mergers within the industry and widespread failures and redemption notices of hedge funds themselves. and prime brokers acting as business partners to hedge fund managers. the problems are even worse for those funds investing in emerging markets. This is due to a number of factors including the struggle and failure many investment banks offering prime brokerage services including Lehman Brothers. Furthermore. Tudor Investment Corp. Finally. some hedge funds are also being forced to renegotiate borrowing terms with their prime brokerage lenders as losses and redemption requests increase (see Financial Times article). Multi-prime brokerage relationships used to be used by $5B+ hedge funds whose large institutional clients demanded the practice as a risk management technique.The Prime Brokerage Book Investment Group.41% on average in November (see Bloomberg article).com PrimebrokerageAssociation.

This is due to the commoditized nature of the industry and high level of competition for new business. Prime brokerage firms are now publishing white papers. Lehman failed and many investment banks have struggled or sold off their prime brokerage services to other firms. in 2008 everything has changed. This has lead to widespread migrations between prime brokerage service providers and a trend towards managing multiprime brokerage relationships for funds with over $500M in assets or even lower. It was seen in the same light as a major economic superpower defaulting on their own investment notes.com PrimebrokerageAssociation. Anyone offering these services lately has faced increased challenges of investors sitting on cash.The Prime Brokerage Book had collapsed. The third major trend affecting the prime brokerage business is that more firms in the space are positioning themselves as business partners. investors Prime Broker List Nowadays this list seems to be changing daily . offering business plan and marketing plan startup tools and holding workshops and networking events to help hedge fund managers connect with additional business partners an. Prime brokerage firms are no effected by this. Some firms as small as $5M are choosing to work with more than one prime brokerage firm from the very start as a few firms have reported shutting down due to assets being locked up within Lehman Brothers when they collapsed earlier this year. Another shift in the industry has been felt within the area of capital introduction services. especially since they often take on and attempt to service more clients than most independent hedge fund marketers which are often referred to as third party marketers would.org 43 . This had led to more selective capital introduction service offerings by prime brokerage firms and more frequent partnerships between prime brokerage firms and third party marketers in the industry. This year. poor market and overall industry performance along with increasingly frequent reports of hedge fund fraud.but here is a PrimeBrokerageGuide.

Inc. RBC Capital Markets Corporation Ferris. Prudential Bache Commodities. Ingalls & Snyder L. Deutsche Bank Securities Inc. MF Global Inc. BMO Capital Markets Corporation Morgan Stanley & Co. Inc. Inc. PrimeBrokerageGuide.com PrimebrokerageAssociation. Inc.C.C. L.L.C. Banca IMI Securities Corporation First Clearing. J.The Prime Brokerage Book relatively recent list containing the names of over 190 prime brokerage firms: Goldman. Ridge Clearing & Outsourcing Solutions. LLC Morgan Stanley & Co. Baker Watts. Inc. LLC Barclays Capital Inc. L.C. Merrill Lynch Professional Clearing Corp. Prudential Bache Securities. Bernstein & Co.org 44 . LPL Financial Corporation National Bank Financial Inc.L. LLC Neuberger Berman.L. Barclays Capital Inc. LLC Penson Financial Services. Inc.L. L. Jefferies & Company.P. Incorporated Legent Clearing LLC Prime Dealer Services Corp. Lek Securities Corporation ITG. Dundee Securities Corporation Natixis Bleichroeder. Morgan Securities Inc. Wedbush Morgan Securities. Sachs & Co. Fortis Clearing Americas LLC Goldman Sachs Execution & Clearing. Neuberger Berman. Inc. Incorporated Interactive Brokers L.P. Sanford C.

Inc. RBC Dominion Securities Inc. LLC Goldman Sachs Execution & Clearing. Albert Fried & Company.. PrimeBrokerageGuide. Lazard Capital Markets LLC First Southwest Company Bank of America Securities. LLC. Inc. Credit Suisse Securities (USA) LLC MF Global Inc. Morgan Clearing Corp. Southwest Securities. National Financial Services LLC Lek Securities Corporation BNP Paribas Prime Brokerage. Wachovia Securities. LLC Piper Jaffray & Co. Barclays Capital Inc. Compass Professional Services.org 45 . NYFIX Securities Corporation Merrill Lynch Pierce Fenner & Smith Inc. Inc.P. Inc. Inc. Inc. LLC Goldman Sachs Execution & Clearing. Nomura Securities International Inc. Inc. Scotia Capital Inc. L.A. UBS Financial Services Inc. Electronic Brokerage Systems.P. Gelber Group LLC BMO Nesbitt Burns. LLC J. Inc.com PrimebrokerageAssociation. LLC Penson Financial Services.P.The Prime Brokerage Book Merrill Lynch Pierce Fenner & Smith Inc. Bank of America Securities.S. Inc. ING Financial Markets LLC TradeStation Securities. LLC SG Americas Securities. L. Maple Securities U. Inc. American Enterprise Investment Services. Charles Schwab & Co. RBC Capital Markets Corporation SMW Trading Company. Greenwich Capital Markets.

E*TRADE Clearing LLC Tradelink L. Archipelago Securities. Octeg. LLC Newedge USA.P. Sachs & Co. BNP Paribas Securities Corp. Morgan Clearing Corp. L. L. Credit Suisse Securities (USA) LLC Terra Nova Financial. CIBC World Markets Inc. Stephens Inc. Nasdaq Option Services. PrimeBrokerageGuide.C. Fortis Clearing Americas LLC CGMI Citigroup Global Markets Inc. LLC Paloma Securities.C.L.L. Inc. Vision Financial Markets LLC Lek Securities Corporation Penson Financial Services. Goldman Sachs Execution & Clearing.L. Ziv Investment Company Merrill Lynch Professional Clearing Corp. L.L. UBS Securities LLC MF Global Inc. Inc. Automated Trading Desk Financial Services.org 46 . Goldman.com PrimebrokerageAssociation. Assent LLC Pershing LLC StockCross Financial Services.C. LLC J.The Prime Brokerage Book optionsXpress. LLC MS Securities Services Inc.P. Inc. LLC USAA Investment Management Company Tradition Asiel Securities Inc. ABN AMRO Inc. Janney Montgomery Scott L.C. LLC MF Global Inc. Newedge USA. CIBC World Markets Corp.

Merrill Lynch Professional Clearing Corp.com PrimebrokerageAssociation. Merrill Lynch Professional Clearing Corp. Deutsche Bank Securities Inc. / Merrill Lynch Futures Morgan Stanley & Co.C. UBS Securities LLC UBS Securities LLC Interactive Brokers L.P. PrimeBrokerageGuide.The Prime Brokerage Book Interactive Brokers L. Lakeshore Securities. Merrill Lynch Professional Clearing Corp. Inc.C. L.L. Newedge USA. Barclays Capital Inc.C. Goldman Sachs Execution & Clearing.C. Merrill Lynch Professional Clearing Corp. Newedge USA.L. Merrill Lynch Professional Clearing Corp. Merrill Lynch Professional Clearing Corp.C. Madoff Investment Securities LLC Daiwa Securities America. LP Vision Financial Markets LLC Tradelink L. LLC Merrill Lynch Pierce Fenner & Smith/Broker Dealer Execution Services Timber Hill L. TD Waterhourse Canada Inc. Fortis Clearing Americas LLC Robert W. LLC. L. Baird & Co. Fortis Clearing Americas LLC Oppenheimer & Co. LLC KDC Merger Arbitrage Fund.P.L. Incorporated Electronic Brokerage Systems.L. LLC J. Bernard L.org 47 . LLC Merrill Lynch Professional Clearing Corp.P. Inc. Calyon Securities (USA) Inc. BNP Paribas Securities Corp. Incorporated Timber Hill L.L. Newedge USA. Morgan Futures Inc. LiquidPoint.

Merrill Lynch Pierce Fenner & Smith/Broker Dealer Execution Services Stifel Nicolaus & Company Incorporated RBC Capital Markets Corporation Fortis Clearing Americas LLC HSBC Securities (USA) Inc. Morgan Clearing Corp. LLC Fortis Securities. L. J. Inc. L.L. Morgan Clearing Corp. Lyons. Goldman Sachs Execution & Clearing. LLC Raymond James & Associates. Citigroup Global Markets Inc.L. L. Clearview Correspondent Services. W.C.The Prime Brokerage Book Merrill Lynch Pierce Fenner & Smith/Broker Dealer Execution Services Goldman Sachs Execution & Clearing. Morgan.P. EWT.P. Merrill Lynch Professional Clearing Corp. Inc. Keegan & Company. LLC H&R Block Financial Advisors. TD Ameritrade Clearing. Hilliard. L. LLC William Blair & Company. LLC Citadel Trading Group L. Newedge USA. Goldman Sachs Execution & Clearing. Fortis Clearing Americas LLC Cantor Fitzgerald & Co. L.com PrimebrokerageAssociation. LLC J. LLC Scottrade. LLC Goldman Sachs Execution & Clearing. Inc. Fortis Clearing Americas LLC OCC/ICE CLEAR Cross Margin J.P. Fortis Clearing Americas LLC Wells Fargo Investments. L.P.L. Bank of America Securities.org 48 .P.P. Newedge USA. PrimeBrokerageGuide.B. LLC Newedge USA. Goldman Sachs Execution & Clearing. Inc. Inc. Mesirow Financial Inc.J.C.P.

It seems like a PrimeBrokerageGuide. steep losses or all three. Chicago Mercantile Exchange Goldman Sachs Execution & Clearing. Most hedge funds are relatively short on staff as it is and legal battles can keep managers from trading and raising capital as they should.com PrimebrokerageAssociation. Bank of America Securities. With gates dropping as fast as assets at many hedge funds investors may be often left with locked-up assets. Prime Brokerage Lawsuits Hedge Fund Lawsuit | Legal Actions (http://HedgeFundBlogger. partial withdrawals.org 49 . L. After what we’ve been through in the past year that all seems like the good old days.P.com) Perhaps more dangerous than a wave of further redemptions in the hedge fund industry would be a wave of legal actions.The Prime Brokerage Book Merrill Lynch Professional Clearing Corp. LLC Nomura Securities International Inc. The last thing the industry needs is wave of 500+ lawsuits against hundreds of the top managers in the industry. Here is a story excerpt about Amaranth and their lawsuit against JP Morgan and their prime brokerage division: Remember the days when a hedge fund losing billions was news? Wise men would knot up their brows and wonder if hedge funds weren’t too loosely regulated or were creating some kind of systemic risk. We were reminded of this today when we discovered that Amaranth’s lawsuit against JP Morgan Chase was still going on.

but I would be surprised if regulators gone down this road. Hunter is said to blame Maounis for not having the available cash to cover the margin calls. for his part. This state of affairs is courtesy of the significant amount of concentration in the hedge fund industry. and sold its assets to JP Morgan and Citadel.. Most of the world‘s hedge fund assets are managed by a small group of mega-managers who can shop their business around to various prime brokers in order to extract the best deal. Amaranth lost $6 billion. Those feelings because a lawsuit. A new paper says that in an effort to win this business. collapsed.. the average dollar invested in a hedge fund is managed by a large manager who regularly uses leverage. From a cost perspective this may make sense since this is a central point of potential risk control. prime brokers have been falling over themselves to offer the most leverage and the best terms.com) Below is a article from All About Alpha regarding pending regulations on the hedge fund industry and how they may target prime brokerage firms. Ergo. it is the prime brokers.org 50 . of course. Prime Brokerage Regulation Are New Regulations Possible? (http://PrimeBrokerageGuide. Afterwards. I believe regulations will stay at the security level and then target banks more directly than hedge fund managers.com PrimebrokerageAssociation. not home-owners…) PrimeBrokerageGuide. It was the trade that made Brian Hunter. felt he was done in by nefarious deeds at his prime broker.The Prime Brokerage Book lifetime ago that the fund run by Nick Maounis imploded amid bad bets on natural gas. (Think: regulating mortgage brokers. Amaranth’s lead energy trader. not the hedge funds themselves that require stricter regulation. JP Morgan. there were recriminations in all directions. Read more. Maounis. While the average hedge fund is small and uses a very small amount of leverage. famous.

The Prime Brokerage Book

By doing so, regulators can also get the prime brokers to do some of their bidding when it comes to hedge fund oversight. In other words, they‘d essentially be informally deputizing the prime brokers. The paper was written by Michael King of the Bank for International Settlements and Philipp Maier of the Bank of Canada. (Note to PR departments of these organizations: Relax, the author says, ―no responsibility should be attributed to the Bank for International Settlements or the Bank of Canada―.) Read more...

Saratoga Prime Services Pulse Trading
New York, NY, – Saratoga Prime Services, a division of Saratoga Capital, LLC, has formed an alliance with Pulse Trading, Inc. that will give Saratoga Prime‘s hedge fund clients access to Pulse‘s dark pool, agency desk and investment research services in return for Saratoga Prime‘s trading, clearing, custody, technology and administration facilities. Saratoga Capital of New York and Pulse Trading of Boston are both institutional agency brokerage firms. Saratoga Prime specializes in providing trading-related services to start-up and mid-sized hedge funds. Under the joint agreement, Saratoga Prime‘s clients will gain access to Pulse Trading‘s BlockCross dark pool and the firm‘s institutional trading desk, together with its Investment Research Consortium of ―best of breed‖ independent securities analysis and commission management service. Pulse‘s clients will be able to tap into the brokerage services of Saratoga Prime, and the clearing and custody services of Goldman Sachs Execution and Clearing (GSEC), JP Morgan, and Interactive Brokers.

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The Prime Brokerage Book

―We believe strongly that this reciprocal agreement between Saratoga Prime and Pulse Trading will be of immense benefit to our respective clients,‖ commented Saratoga Prime managing partner Lance Baraker. Added Kevin Carroll, Pulse Trading managing partner, ―We are very pleased to introduce our leading-edge block trading and independent research services to Saratoga Prime and its clients.‖ Baraker also disclosed that Saratoga Prime has expanded its Prime offering in Dallas, TX, and San Francisco, CA. Todd McFarland, formerly with Citigroup Lava Trading and AFA (Advanced Financial Applications) recently joined Pulse‘s San Francisco office and is responsible for Saratoga‘s West Coast business. New York-based Saratoga Prime also has a regional office in Boston, MA.

Prime Brokerage Firms Pressuring Managers
Adding to the challenges of trying to improve the performance of their funds hedge fund managers are now facing additional pressure from their prime brokers. While some funds will simply end up paying more or having to sell off some assets to meet capital requirements others will simply shop around more...further increasing the rate at which hedge funds change primary prime brokers or multi-prime with an assortment of prime brokerage firms at one time. Here is a short article on this topic: The survival of a raft of hedge funds is being threatened by fresh pressure to stump up more collateral for trades made in a range of illiquid assets. So-called prime brokers, who provide a range of services to hedge funds, are imposing tougher conditions on their clients and charging more for financing following the collapse of Lehman Brothers in mid-September, raising fears that more funds face collapse. The more conservative terms mean that a hedge fund would have to put up extra collateral against financing if markets fall further or sell
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The Prime Brokerage Book

down its holdings. The problem for many hedge funds is that they have already sold down their more liquid investments and are grappling with a wave of redemptions from their own investors. Further collateral requests or higher financing costs may push many hedge funds over the edge. One hedge fund manager said: "Funding is being withdrawn by prime brokers and funding rates have risen sharply in the past week or two. A tough environment is just getting tougher." Industry managers are concerned that renewed market turmoil, leading to weaker performance and client redemptions, could lead to a vicious circle of selling by hedge funds. One prime broker said the situation was "on a knife edge". "Everyone needs to keep their nerve," he added. He also said that prime brokers were particularly targeting funds that specialize in emerging markets, both in equities and fixed income, as well as in credit and convertible bonds - instruments that can -convert into ordinary shares. Source

Switching Prime Brokerage Firms
(http://PrimeBrokerageGuide.com) Lately you might have noticed an ongoing "battle of the press releases" in the media by many prime brokerage firms. These are typically written so that the firm is positioned as being safe, technologically advanced or recently swamped with new business. This is because these firms know that many decisions are being made each day right now by hedge fund managers regarding where to prime. More funds than ever before are now deciding to multi-prime or switch prime brokers altogether. Here is a reason excerpt and quote from someone at UBS speaking to this point:

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"Never has there been a more disruptive period. When the hedge fund begins the trade. "It's a $2 trillion business and in normal market conditions. probably 35 to 40 percent of global market share has been redistributed. the choice of the executing broker includes but is not limited to the trading desk of the prime broker. confirms the trade with both sides if the trade details match. the prime broker works with the hedge fund and the executing broker to resolve the differences." said Alex Ehrlich. Respectively. the prime broker allows the hedge fund to trade under the prime broker's name and assumes the role of the hedge PrimeBrokerageGuide. Loader (2002) gives an in-depth analysis for the clearing and settlement services in the general financial markets." Financial Clearing and Execution Services Clearing is one of the most basic services provided by a prime broker. hundreds of investment funds that relied on broker-dealers established accounts with commercial banks boasting stronger credit. Otherwise. global head of prime services at UBS. (A broker-dealer must maintain a "Chinese Wall" between the prime brokerage operation and the trading desk. people kill themselves to move 1 percent of market share. he performs back office functions on behalf of the hedge fund client with the broker-dealer that executed the trade.) If a prime broker acts as principal in the give-up process. Goldman Sachs Group Inc and Bear Stearns. The prime broker then performs a post-trade matching. the executing broker gives-up the trade (meaning.org 54 . In recent weeks. For the hedge fund. and the hedge fund reports the allocations of the trade to the prime broke. The moves have shaken up a business long dominated by Morgan Stanley. passing the trade information) to the prime broker.The Prime Brokerage Book Across Wall Street.com PrimebrokerageAssociation. the fund provides the executing broker with the prime broker's name and the relevant account with the prime broker. When a prime broker is hired to carry out clearing.

CEO of Paladyne Systems. thanks to the available technologies. OTC derivative and credit markets. three leading foreign-exchange prime brokers . JP Morgan Chase and AIG Trading have casted aside competitive differences and teamed up to create an online service for automating the "give-up" trade process. Exchange or cash traded securities are usually cleared on an agency basis.org 55 . Principal prime brokerage is most common in the foreign exchange. In 2008. In as early as 2003. On the other hand. head of global sales and marketing and a senior partner at Merlin Securities. The prime broker could also act as agent.Deutsche Bank. the financial crisis has proven the need for the multi-prime brokerage model. "to help (executing brokers) give up their transactions electronically not just to one prime broker but to all (of their) prime brokers"(more). the prime broker plays the role of the executing broker with respect to the hedge fund. in which case the prime broker clears and settles the trade on behalf of the hedge fund but does not assume counterparty risk. "That has led to Merlin picking up dramatic new business given its multi-prime services.The Prime Brokerage Book fund with respect to the executing broker. "(hedge fund) firms should consider that establishing relationships with multiple prime brokers can spread the risk that their assets will be in jeopardy if another crisis arises. Ron Suber." (full article) The process for a hedge fund to clear through multiple prime brokerage firms has been made easy. According to Sameer Shalaby. for all future cash flows associated with the trade." By Yifei Huang Sources: Hedge Funds and Prime Brokers.com PrimebrokerageAssociation. explains in an article dated Oct 2008 that Merlin's technology allows funds to aggregate data from different prime brokers on one system. Fixed Income Prime Brokerage: Agency Model Prime Brokerage Flows PrimeBrokerageGuide.

Read more. The prime brokerage units inside the big investment banks provide financing.com PrimebrokerageAssociation. Stock Market Trading Volume There was an article out today in the FT about low stock market trading volume.. Several hedge funds that had counted on Lehman‘s prime brokerage unit were stunned to find out that their collateral was frozen and that they could not get access to their money to make trades.org 56 . But the demise of Lehman Brothers last month shook up this lucrative business. as well as for other investors. I've also heard that managers are holding more cash than usual.. according to Investment Dealers‘ Digest. while two more — Morgan Stanley and Goldman Sachs — have had hundreds of clients pull their money out of their prime brokerage units. Two major prime brokers — Bear Stearns and Lehman Brothers — are gone. which have all fought for years to lure prime brokerage clients away from their big rivals. I have heard this directly from prime brokerage firms. PrimeBrokerageGuide. as well as independent prime brokers. The result has been a boom for rivals like Deutsche Bank and Credit Suisse. clearing and settlement services for hedge funds. These units hold on to billions of dollars of their investors‘ cash and help execute their trading strategy. Some that depended on Lehman as their sole prime broker remain paralyzed.The Prime Brokerage Book Industry Changes Here is a short excerpt from Dealbook on the recent dramatic changes in the industry which have been reshaping the competitive landscape of this space: The prime brokerage landscape seems to be changing amid the shake-up on Wall Street.

most funds are working within negative territory for 2008. when the S&P 500. with only October 1 and 2. its largest one-day drop in more than 60 years. for example. say analysts.recent data suggests that Asian funds are down more than their peers over the last few months. Indeed volume was only 58 per cent of the record reported on October 10 when the S&P 500 fell just 1.2 per cent. that combined with traditionally using less leverage than some other funds might have helped a few Asian hedge funds weather this storm. but as the index figures which published this morning show . volume was only 11. The exception to this seem to be those few funds which thrive during this type of market volatility.com PrimebrokerageAssociation. when the ban on short-selling financials was still in effect. This decoupling of volume and volatility in equity markets is just another example of the reluctance of traders to speculate against a backdrop of uncertainty over the global banking system and economy. Wall Street‘s benchmark equity index.The Prime Brokerage Book taking more cautious trading positions than usual. Here is the story: Some of the steepest sell-offs and gains witnessed in an especially volatile few weeks for Wall Street could have been exacerbated by relatively low trading volumes as frightened hedge funds sat on the sidelines.. On October 15. dropped 9.5bn shares. This was the third lowest volume day that month. Source Asian Fund Leverage & Prime Brokerage It seems that many Asian-based hedge funds have dodged a few bullets by not being tied as closely to Bear or Lehman. By a few I mean very few .9 per cent.. having lower trading levels.org 57 . Below is an excerpt on how some Asian funds have dodged the prime brokerage woes of US and UK based groups: PrimeBrokerageGuide.

com PrimebrokerageAssociation. . A clearer picture of the redemption rate is expected to emerge in early November. Prime brokerage continues to generate strong results for the group. ―Our clients have been extremely sensible in the way they use gearing ." he said. with a market share estimated at about 15-17 per cent. Prime Brokerage Future Future of Prime Brokerage | Shifts in Power The last 3 months of market activity has led to a mass re-distribution of power within the prime brokerage industry." PrimeBrokerageGuide. Here is a quote from John Mack last week of Morgan Stanley speaking to this effect and of markets in 2009: Yet as Morgan Stanley and other companies move to reduce leverage. and far more constrained in their use of illiquids. forcing banks to cut back. cash levels were between 5 per cent and 10 per cent.The Prime Brokerage Book ASIAN hedge funds are relatively shielded from the distress that their counterparts in developed markets are weathering. thanks to their use of 'far less' leverage. The bank's prime brokerage is the third largest in Asia after Goldman Sachs and Morgan Stanley.org 58 .‖ Still. "Any time you take a business running at 30 times (leverage) and take it down to 16 to 17. . A year ago. Asian hedge funds could see redemptions of between 10 and 40 per cent. UBS yesterday hosted its third pan-Asian hedge fund conference. "We have to look at that and resize it. said UBS head of prime services (Asia Pacific) David Gray. that changes the nature of your business. Funds' cash levels vary between 20 per cent and more than 50 per cent. profit and revenues have plunged. ―far higher than we have seen previously‖.

's hedge-fund clients may have to pay more collateral on $65 billion of assets frozen when the investment bank went bankrupt a month ago.The Prime Brokerage Book As many as 30 percent of hedge funds are expected to go out of business in the next year due to market losses and redemptions. revenues flowing through Morgan's prime brokerage business will decline. he said.com PrimebrokerageAssociation. well-known as a mutual fund powerhouse.org 59 . which are frozen within Lehman Brothers. Morgan Stanley now has less than $20 of assets for every dollar of equity. Source Fidelity Prime Brokerage Fidelity Investments is building out its prime brokerage. Fidelity said half its clients have $1 billion or more. Source Margin Calls | Risk of Margin Calls Associated With Frozen Prime Brokerage Accounts The motivation to multi-prime increased more this week as hedge fund managers learn they may have to meet margin calls on securities. Morgan Stanley shares some of the blame for being overleveraged. PrimeBrokerageGuide. As a result. It currently is a prime broker to 300 hedge funds. down from more than $30. and has been shedding assets and raising capital to reduce its leverage ratio. It launched a prime brokerage in 2003. The Boston company. The company has been broadening its business model. told the Financial Times.Lehman Brothers Holdings Inc. it is expecting to add 50 hedge funds to its client base over the next month. Mack said. 15 (Bloomberg) -. Here is a short excerpt from a news piece on this topic: Oct.

Fridman is reported to have said "this is absolutely correct.. its competitors are scheming.. they have to meet margin calls. you still have to pay your mortgage.K. ``If your bank fails. there are nonetheless some good opportunities for concluding investment deals.'' Source Prime Brokerage Mergers & Acquisitions As the prime brokerage industry continues to evolve I believe we will see further consolidation among competitors and even more emphasized bell shape to the industry. Here's a recent article on this topic: As the United States falters. The clients may be required to put up more collateral if the value of those securities drops." to which Mr.com PrimebrokerageAssociation. Dmitri Medvedev met with the leader of one of Russia's largest conglomerates.org 60 . the Times reported that. On Monday. While investors are largely unable to access their Lehman accounts.. a process known as a margin call. executives from France's mostly-stillPrimeBrokerageGuide. That same day. said in an interview in Lehman's Canary Wharf office. They hold an additional $20 billion in short positions. late last month.I fully share your view.) He interjected at one point: ―Maybe we should also buy something while it‘s not too late?‖ and later insisted quite strongly that "despite the crisis . the value of the securities continues to fluctuate along with the markets..500 active clients including hedge funds that own about $45 billion in securities.The Prime Brokerage Book Lehman's London-based prime brokerage has about 3. or bets that prices will fall. They are not the only vultures circling. Steven Pearson. said in an interview. operations." and so on. 43. and gave his strong blessing for an acquisition of foreign banking holdings (preferably American. the partner at PricewaterhouseCoopers responsible for unraveling Lehman's U.'' Pearson. If the value of the securities fell. ``Who is the holder of the risk of the securities? The hedge funds. Mikhail Fridman of the Alfa Group.

say. Lehman Brothers. which is an unintended consequence of absent investment opportunities within Japan itself. By Nov 2007. Singapore serves as prime broking regional PrimeBrokerageGuide. investment banks operating independently of commercial banks—being more vulnerable than. BNP Paribas bought over Bank of America's prime brokerage unit and now competes with JP Morgan and Goldman Sachs. For BNP Paribas.org 61 .The Prime Brokerage Book solvent banks gathered to discuss opportunities in banking sectors traditionally dominated by American companies. But the American model is still more attractive than the Russian banking model. Citigroup. failure of such a bank could be more catastrophic to the overall system). And little time was lost—last Wednesday. it was the brokerage industry. According to an article dated Feb 2007 from eFinancialCareers. they get both an immigration card and an application form for opening a hedge fund. the European universal banks.com PrimebrokerageAssociation. For Societe Generale.Barclays Capital. Prime Brokerage Singapore When visitors arrive at Singapore's Changi Airport. though a large and diversified bank is more stable than a niche one. The fact is that hedge funds in Singapore were growing fast since 2006. though the latter have problems as well (for one thing. This was one of the jokes making the rounds in 2007. that included a bid for investment banking and equity derivatives. with the American model of specialist banking— that is. What can this all mean? One way to look at it is as a form of creative destruction in action.. Morgan Stanley and UBS all hired for their Singapore prime brokerage operations in 2006. Read more. "prime brokers are in hiring mode" .. which seems to depend on political favor and is less dynamic besides. Japanese companies are attempting to derive similar benefits. or the Japanese model.

In Feb 2008. Levy's hire fills the hole left by Harvey Twomey. to join the firm's Singapore office. Morgan Stanley is looking at scaling back its prime-brokerage operation (detail). had previously been servicing its Singapore clients from Hong Kong. The company has recently been selected to assist ABN AMRO by PrimeBrokerageGuide. Morgan Stanley. Merrill Lynch hired Aussie hedge fund CEO Jeffrey Levy for Asia prime brokerage. Traiana is an example of a provider of financial technology used by banks worldwide and prime brokers involved in the foreign exchange industry. Another source reports that in Sep 2008. As reported on Oct 4th. As the growth of hedge funds slowed down due to the credit crisis. an article (download pdf) dated Feb 2008 pointed out that "their (referring to the prime brokers in Singapore) enthusiasm for growth is now waning". However others believe that "Asian hedge funds may be cold.org 62 . according to HedgeFund Intelligence. Citigroup Inc and Barclays Capital plc.The Prime Brokerage Book headquarters for Credit Suisse Group. but the Asian prime brokerage industry remains sizzling"(FINalternatives). 2008.com PrimebrokerageAssociation. Deutsche Bank has moved Chris Pagan (LinkedIn) from Hong Kong to Singapore in order to head prime brokerage for Southeast Asia. to service the fast-growing number of hedge funds in that market. who left Merrill Lynch to join Deutsche Bank as head of global prime finance sales in Asia. It is said that Citi has fired "the latest salvo in the prime brokerage talent wars in Asia". by Yifei Huang Prime Brokerage Software Prime Brokerage is very competitive and industry players are always looking for an edge. Citigroup and Morgan Stanley also opened Singapore prime brokerage offices in 2007. including transferring Danielle Vint to handle the prime brokerage's fixed-income desk in Singapore. indicated by Citi's move to add eight professionals to four Asia offices in Aug 2008. the top Singaporean prime broker by assets under management according to Eurekahedge.

to provided their Advent‘s Geneva® to help in management of Jefferies‘ growing prime brokerage offerings. Source In a bid to gain market share in the ultracompetitive prime brokerage market. Deutsche Bank.com PrimebrokerageAssociation. Recently. the prime broker generally determines the degree of leverage that can be extended to hedge funds using a combination of stress-testing and value-at-risk. Advent Geneva® now serves eight out of ten of the top prime brokerage firms worldwide and is innovative beyond competitors as to its global investment management and accounting platform.The Prime Brokerage Book providing technological enhancements for use in their developing FX prime brokerage service. CSFB has been considering systems to accomplish this for more than a year. JP Morgan Chase. California. managing principal of Vodia Group. fixed income. Morgan Stanley. CSFB. and Tel Aviv. according to Philip Vasan.org 63 . Chicago. Due to the recent credit crunch. Since with leverage can come increased risk. AIG Trading. Customers include ABN AMRO. Source An Explanation | Prime Brokerage Leverage One of key functions of prime brokers is to provide financing to its hedge fund clients. London. The new system will allow CSFB to provide its institutional clients with risk assessment across their holdings in the equity. Credit Suisse First Boston has added a customized risk assessment and trading system to its prime brokerage unit.. on a portfolio by portfolio (or client by client) basis. Traiana. Advent Software has been selected by Jefferies & Company Inc. is headquartered in San Mateo. foreign exchange and derivatives markets. with offices in New York. he said. so they can acquire the leverage needed for their strategies. a top tier global investment bank and institutional securities firm." said Josh Galper. global head of prime services. "…the amount of leverage PrimeBrokerageGuide. "Leverage is being closely watched. which advises hedge funds on borrowing strategies. and Societe Generale.

the leverage used by the fund is determined by the amount of margin on the swap required by the prime broker.with equity swaps used side by side with stock loan and other services for particular parts of their portfolios. thereby providing leverage of 4 to 1. The account is advised by the hedge fund manager. one approach takes the form of a managed account swap. where the hedge fund is the counterparty to a total return swap on that account. and the prime broker gains interest on the debt. the hedge fund borrows some portion of the security's value from the prime broker.org 64 . and charges the interest in the form of a swap payment received from the hedge fund. Through this synthetic prime brokerage service. using $25 million of its own assets and $75 million of margin debt provided by the prime broker. The first is by providing margin financing. The prime broker then enters into a total return swap with the hedge fund.The Prime Brokerage Book being utilized is being reviewed much more carefully than it has been in the past. Source: Hedge Funds and Prime Brokers PrimeBrokerageGuide. So different from the first method. and is usually termed "synthetic prime brokerage". the prime broker has an account with $100 million of its own assets. The alternative way of extending leverage is through the OTC derivatives. according to an article by HedgeWeek. in other words. Many hedge funds use synthetic prime brokerage service as part of a full service prime brokerage agreement . To follow the example above. As margin for the swap. The prime broker sets up an account advised (or managed) by hedge fund manager who has trading discretion." (See article from MarketWatch) There are two major methods that a prime broker can lend leverage to a hedge fund. the prime broker requires the hedge fund to post $25 million of equity. While the structure of this form of financing varies. For example. This way the hedge fund achieves a leverage of 4 to 1 (assuming only long positions). the hedge fund holds a portfolio with a value of $100 million. in this case even though hedge fund manager trades the account to implement the hedge fund's strategy.com PrimebrokerageAssociation. for obvious reasons. the portfolio actually belongs to the prime broker.

commissions from trading. Therefore.org 65 . client deposits (credit balances). PrimeBrokerageGuide. Sources say that prime-brokerage fees may increase significantly.9-billion in 2009. it is said. which are charged in basis points on the value of client loans (debit balances). by almost a third.The Prime Brokerage Book Guest post by Yifei Huang Prime Broker Service Fees Prime brokers don‘t charge fees for many of the services they provide to hedge funds. clients who take substantial short-selling or major amounts of leverage are representatives of more lucrative opportunity than clients who do relatively less short selling and/or use minimal leverage For example. profits are usually derived from three sources: spreads on financing (including stock loan). Instead. The financing and lending spreads. client short sales (short balances). and synthetic financing products.com PrimebrokerageAssociation. This business is currently dominated by Morgan Stanley. and Goldman Sachs Group Inc. that hedge funds will pay on Wall Street record fees next year for brokerage services. and fees for the settlement of transactions done away from the prime broker. to $9US.

which are each based in New York. an investment club run by students of the University of Virginia's business school.  Diamondback Capital Management LLC.5 billion Multi-Strategy fund in part because of assets stuck at Lehman  Lehman Brothers Holdings Inc.. Connecticut-based hedge fund. Amber Capital LP and Bay Harbour Management LLC.org 66 .Hedge Funds GLG Partners Exposure to Lehman Brothers Here is a letter to investors put out by GLG partners on their homepage earlier this week. We wanted to update you about the impact to us arising from the administration proceedings of Lehman Brothers International PrimeBrokerageGuide. It addresses the firm's exposure to Lehman Brothers in midst of that firms bankruptcy… Dear GLG Fund Investor.  London-based MKM Longboat Capital Advisors LLP said last week it will close its $1.The Prime Brokerage Book Lehman Bankruptcy Victims | Hedge Funds The following is a short and far from exhaustive list of hedge funds which were recently affected by Lehman Brother's bankruptcy. has about $6 million in four funds that are stranded. both in London  Darden Capital Management. told investors that it had assets of $777 million stranded in Lehman  Managers with a smaller percentage of assets in Lehman limbo include Harbinger Capital Partners.com PrimebrokerageAssociation.'s bankruptcy probably means the end of hedge-fund manager Oak Group Inc. a Stamford. after 22 years in business. Guest post by Market Folly Permanent Link: Lehman Brothers Bankruptcy Victims . and RAB Capital Plc and GLG Partners Inc.

Since at least the beginning of 2008. that amounts LBIE was required to treat for each Fund as client money and not use in the course of its business were and are.The Prime Brokerage Book (Europe) ("LBIE‖). In the event that one or more Funds are ultimately unable to publish a timely NAV. except in a few cases where there may be a short delay while our estimates are further refined and valued. our estimates could change.com PrimebrokerageAssociation. Our assessment of the LBIE exposure is based upon a number of assumptions (including. in fact. In total. PrimeBrokerageGuide. We have detailed each Fund‘s potential exposure stemming from LBIE's administration in letters to the investors in those Funds. we believe that all of our Funds will be able to publish a dealing NAV as at October 1 by writing down the estimated exposure to LBIE to fair value. or less than 1% of GLG's net AUM. the directors of these Funds will consider a number of alternatives all of which will be designed to treat all Fund shareholders equally. minimize disruption to the investment process. We have been pressing to begin a constructive dialogue with the Administrators soon. At this point. and the insolvency proceedings of other entities in the Lehman Brothers group. so held and will be released upon repayment by each Fund of all its debt to LBIE) and in accordance with legal and professional advice obtained. we are evaluating with the directors of our Funds how to address Fund NAV's and the October 1. until we are able to fully reconcile our information and assumptions with the administrators of LBIE. we currently estimate that the combined direct exposure of the GLG Funds to be approximately $95 million. We believe NAVs will be published in the normal periods of time. 2008 dealing day. We have good reason to believe that these arrangements were adhered to by LBIE but until we meet with the Administrators some uncertainty will remain. in addition to steps taken to significantly reduce our Fund assets held with LBIE. That said. enable the Funds to continue to invest and permit redemption of shares in the funds. Lastly. which will enable us to refine our assessment further.org 67 . we negotiated to more fully protect any remaining assets and transactions through a series of bespoke arrangements.

at least three lawsuits have been filed. Now a new and even more troubling scenario is arising: legal disputes stemming from the estimated $1 trillion in derivatives transactions that Lehman had entered into on behalf of itself and some of its customers. which at onetime was considering buying Lehman as the investment firm was lurching towards bankruptcy.The Prime Brokerage Book If you have any questions. Scores of hedge funds that had hundreds of millions in cash and other securities parked with Lehman‘s prime brokerage operation in London have had their accounts frozen. To date.org 68 . alleging that nearly $600 million in collateral posted by some of Lehman‘s trading partners in derivatives transactions hasn‘t been returned and is in jeopardy of disappearing as the bankruptcy process unfolds. The Charlotte. please feel free to contact your representative with any questions. Best Regards.com PrimebrokerageAssociation. is mounting a legal challenge to the court‘s hastilyapproved sale of Lehman‘s brokerage arm to Barclays Capital. A number of these hedge funds have filed formal objections with the bankruptcy court and at least one fund. New York-based Bay Harbour Management. NC PrimeBrokerageGuide. GLG Partners LP Lehman Bankruptcy Mess Here is a Business Week article on the mess with Lehman Brothers: The Lehman Brothers bankruptcy is quickly becoming one giant mess. Already. the most aggrieved of Lehman‘s trading partners is Bank of America.

What these numbers seem not to include are the monthly commission checks which are cut to successive prime brokerage relationship managers.The Prime Brokerage Book based lender is seeking to recover nearly $500 million the bank ―posted as collateral to ―support derivative transactions between BofA and the respective Lehman Entities. In the NY. The average salary for entry-level prime broker in the US is $49. MA. $84K and $79K.000100. the definition of it..000/month through trading commissions alone. Rights & Costs Here is a short article about the Rehypothication by prime brokerage firms. Read more. IL and CA these numbers are $61K. IL.com PrimebrokerageAssociation.indeed. Salary Levels . MA.org 69 . $55K.Prime Brokers According to www. $58K. MA. The average salary for senior executives is much higher than junior and entry level prime brokers since this number is $80. $51K and $48K.000 within the US. In NY. These individuals can make $5. the risks of prime brokers PrimeBrokerageGuide. Rehypothication Risks.000. the average salary in the US is $52. CA the average salary for entry-level prime brokers are much higher and these numbers relatively are $57K.com/salary Prime Brokerage Salaries in the United States are vary in different states.‘‘ according to a lawsuit filed in New York State Supreme Court. However in NY.000 as of recent. CA relatively are $94K. For junior prime brokers. $54K and $51K. $90K. IL..

Hedge funds trying to reclaim the rehypothecated assets have found themselves in the queue of general creditors. pushing down their profitability and pushing up the cost of borrowing. thanks to hedge fund cash kept on deposit and the rehypothecation of assets. Prime Brokerage Assets from Lehman PrimeBrokerageGuide. Even those hedge funds which had insisted they did not want their assets rehypothecated – such as Amber and a small RAB Capital fund – face a long and potentially painful wait to get back securities held in segregated client accounts. and to offset this against debts. Take away rehypothecation. the rights of hedge funds who loose access to their assets and what happens to the cost of prime brokerage services when hedge funds request for their assets not to be rehypothicated. likely to get back only a proportion of their money. have told hedge funds it is likely to take months to calculate how much is due to whom.com PrimebrokerageAssociation. Most of the cash has already gone. Read more.. according to current and former executives. PwC. needing very little access to the balance sheet of their parent bank. Here is a short excerpt from the article: The dangers for hedge funds of having their assets rehypothecated became painfully clear last week: $22bn of the $40bn held by Lehman‘s European prime brokerage had been rehypothecated..The Prime Brokerage Book using the strategy. hedge fund managers say. and could lead to the biggest changes in the prime brokerage industry. shifted away from prime brokerages to banks regarded as safer. and banks will have to borrow at far more expensive rates in order to lend to hedge funds. The main prime brokers were almost completely selffunding. administrators of Lehman‘s London business.org 70 . But it is rehypothecation which poses the biggest threat to hedge funds.

$100 million that's owed to you by Lehman? I'd say it's not that great.com PrimebrokerageAssociation. Funds with assets at Lehman probably will have to write them down when they report net asset values.'s Financial Services Authority to sort out how much is owed to ``many hundreds of clients'' with securities tied up at Lehman. according to Laven Partners LLP.'' said Laven Partners founder Jerome Lussan. in a statement today. which oversees $24 billion.'' Prime Brokerage Services List Here is a short list of prime brokerage services: Lending Securities Hedge Fund Startup Services Accessing local shares abroad PrimeBrokerageGuide. CQS U. and it's going to have to be written down.org 71 . ``This process could take several months.K.. PwC said it is working ``very closely'' with the U. GLG Partners Inc. say. according to PricewaterhouseCoopers. you're in the back of a queue that's quite long.The Prime Brokerage Book The following is an excerpt from a recent story about hedge fund assets being stuck within Lehman's prime brokerage business: Lehman Brothers Holdings Inc. ``What's the market value of.K. ``If your hedge fund assets have been included with Lehman's. Lehman's bankruptcy administrator in London. will take ``considerable time'' before returning assets stranded by the world's largest bankruptcy to hundreds of hedge fund clients. a London-based hedge fund consultant.'' said PwC. LLP and Bay Harbour Management LC are among the hedge funds that used Lehman as a prime broker for borrowing stock and clearing trades.

Funds who consider themselves technologically advanced are the most satisfied with their prime PrimeBrokerageGuide.The Prime Brokerage Book Cash Management Capital Introductions . a considerable 38% of managers rating their prime brokers as ―poor‖ performers of capital introduction. this year only 63% gave their prime brokers high marks. This may be a result of the liquidity crisis. In 2007 80% of funds rated the personal service of their prime brokers as either ―good‖ or ―excellent‖. with only 7% responding ―poor‖. However.org 72 . The most notable dissatisfaction is with the prime brokers‘ personal service. which 16% of the managers said negatively effected the relationship with their prime broker. The survey also shows that many funds are happy with the cost of their prime brokers.com PrimebrokerageAssociation.Asset Raising Real Estate Identification or Office Space .Hedge Fund hotels Access to Hedge Fund Lawyers focusing on hedge fund clients Headhunting & talent identification to help build portfolio management teams Third Party Marketing Due Diligence Clearance & Custody of Assets Portfolio Reporting Branding & Marketing IT Consultations Compliance & Risk Management Permanent Link: Prime Brokerage Services Prime Broker Survey A new survey shows that more than one-third of hedge fund and CTA managers are dissatisfied with their prime brokers.

the appetite to sell may be offset as well as encouraged by the depressed prices available. "It would be surprising if the hedge fund administration industry continues to support such a large number of providers.. In any event. In recent years. the custodian banks that have acquired hedge fund administrators have sought to adjust client lists in favor of larger and more profitable hedge fund and fund of funds groups interested in a broader array of services. "However. Prime Brokerage + Administration More prime brokerage firms are adding on administration services to help attract and retain clients. the buyers are likely to be different from the banks which dominated the acquisition process in the early years of this century. At the same time.." says Dominic Hobson. Asian Prime Broker Growth Trend Here is an interesting article about the growth of prime brokerage services in Asia.org 73 . and there is now evidence that a renewed round of consolidation is in the offing." Read more.com PrimebrokerageAssociation. I didn't know that PrimeBrokerageGuide. I wasn't sure how widespread of a trend this was but saw this mentioned within an article yesterday as noted below.The Prime Brokerage Book brokers. prime brokers have recognized that providing administration services can help attract and retain clients and counter the shift among hedge fund managers towards multiple prime brokerage.

and by charging. fees for clearing and/or other services.S. head of Prime Finance.The Prime Brokerage Book growth was so strong for these groups right now..org 74 .. and the hedge fund's collateral requirements are netted across all deals handled by the Prime Broker. as more global hedge funds set up shop in the region." Explain Prime Brokerage Prime brokerage is the generic name for a bundled package of services offered by investment banks and securities firms to hedge funds and other professional investors needing the ability to borrow securities and cash to be able to invest on a leveraged basis and achieve an absolute return. It also earns money by hypothecating the portfolios of the hedge funds it services and charging a fee to those borrowing securities and other investments. The following services are typically bundled into the Prime Brokerage PrimeBrokerageGuide.com PrimebrokerageAssociation." she told Reuters in an interview. many large international managers are doing more business in the region. banking giant. The business advantage to a hedge fund of using a Prime Broker is that the Prime Broker provides a centralized securities clearing facility for the hedge fund. drawn by its long-term potential. "We're looking at a 30 to 50 percent growth every year. in some cases. said Hannah Goodwin. "That's how aggressive we want to be with this business and how well we think this business is going to develop for us. Asia Pacific for the U. The Prime Broker benefits by earning fees ("spreads") on financing the client's long and short cash and security positions. Even with tumbling stock markets hammering Asia's hedge fund industry. Citigroup expects the amount of assets serviced by its Asia Pacific prime brokerage arm to grow by more than 30 percent annually over the next three to five years.

as well as in the jurisdiction(s) where the fund itself will be domiciled.A process whereby the prime broker attempts to introduce its hedge fund clients to qualified hedge fund investors who have an interest in exploring new opportunities to make hedge fund investments. custody.The provision of risk analytic technology. Contents * 1 History * 2 Fees * 3 Risks * 4 Sources of Information * 5 List of Prime Brokers PrimeBrokerageGuide. * Risk Management Advisory Services . and then sublease blocks of space to hedge fund tenants. These prime brokers typically provide a suite of on-site services for clients who utilize their space.com PrimebrokerageAssociation. certain prime brokers provide additional "value-added" services.The Prime Brokerage Book package: * global custody (including clearing. sometimes supplemented by consulting by senior risk professionals. and focused on issues associated with regulatory establishment requirements in the jurisdiction where the hedge fund manager will be resident. * Consulting Services .org 75 . which may include some or all of the following: * Capital Introduction . * Office Space Leasing and Servicing . and asset servicing) * Securities lending * Financing (to facilitate leverage of client assets) * Customized Technology (provide hedge fund managers with portfolio reporting needed to effectively manage money) * Operational Support (prime brokers act as a hedge fund's primary operations contact with all other broker dealers) In addition.Certain prime brokers lease commercial real estate. typically provided to "start-up" hedge funds.A range of consulting / advisory services.

domestic long-short equities funds. Through the 1980s and 1990s. all of the hedge fund‘s cash and securities. although various prime brokers did supplement their core equities capabilities with basic bond clearing and custody. In the pre-prime brokerage marketplace. initially by messenger. hedge funds were much smaller than they are today and were mostly U. The first non-U. prime brokers have expanded their product and service offerings to include some or all of the full range of fixed income and derivative PrimeBrokerageGuide. Bear Stearns. then by fax and today over the web. The concept was immediately seen to be successful. prime brokerage was largely an equities-based product. broker-dealer Furman Selz in the late 1970s. Merrill Lynch. and Goldman Sachs.com PrimebrokerageAssociation. These services worked because they also allowed the money manager to maintain relationships with multiple brokerage houses for IPO allocations. portfolio reporting.S. the advent of the prime broker freed the money manager from the more time consuming and expensive aspects of running a fund. the first hedge fund operation is attributed to Alfred Winslow Jones in 1949. and was quickly copied by the dominant bulge bracket brokerage firms such as Morgan Stanley. prime brokerage business was created by Merrill Lynch's London office in the late 1980s. Additionally. portfolio management was a significant challenge. In addition. Fundamentally. Over the years. consolidate their positions and calculate their performance regardless of which brokerage firms executed those trades or maintained those positions.org 76 . Lehman Brothers. money managers had to keep track of all of their own trades. best execution. At this nascent stage. The concept and term "prime brokerage" is generally attributed to the U.The Prime Brokerage Book History The basic services offered by a prime broker give a money manager the ability to trade with multiple brokerage houses while maintaining. the prime broker offers stock loan services.S. However. research.S. in a centralized master account at their prime broker. consolidated cash management and other services. conference access and other products. prime brokers supplemented their operational function by providing portfolio reporting.

As of 2006. primarily through loans secured by the long positions of their clients. the most successful investment banks each report over two billion dollars in annual revenue directly attributed to their prime brokerage operations (source: 2006 annual reports of Morgan Stanley and Goldman Sachs). In practice. clients who undertake substantial short-selling or leverage represent more lucrative opportunity than clients who do relatively less short selling and/or utilize minimal leverage. Rather. and the client is unable to repay the deficit. Risks Prime Brokers facilitate hedge fund leverage. The financing and lending spreads. In this regard. futures. As hedge funds have proliferated globally through the 1990s and the current decade. Fees Prime brokers do not charge a fee for the bundled package of services they provide to hedge funds.The Prime Brokerage Book products. as well as foreign exchange and futures products. but may still present significant economic opportunity in the repo. client deposits (credit balances). client short sales (short balances). foreign exchange (fx). Clients whose market activities are principally fixed income oriented will generally produce less prime brokerage revenue.org 77 . trading commissions and fees for the settlement of transactions done away from the prime broker. such conditions arise PrimeBrokerageGuide. revenues are typically derived from three sources: spreads on financing (including stock loan). and synthetic financing products such as swaps and CFDs (Contract for difference). Therefore.com PrimebrokerageAssociation. make up the vast majority of prime brokerage revenue. prime brokerage has become an increasingly competitive field and an important contributor to the overall profitability of the investment banking business. and flow business areas of the investment bank. the Prime Broker is exposed to the risk of loss in the event that the value of collateral held as security declines below the loan value. which are charged in basis points on the value of client loans (debit balances).

The Prime Brokerage Book only in the case of extraordinary volatility or unexpected correlation reversions and are exceedingly rare. An Introduction to Hedge Funds (Risk Books 2007) Berman (editor). [edit] List of Prime Brokers The following firms are known to be providing prime brokerage services at present: * ABN AMRO (bought by RBS led consortium) * Banco Espirito Santo * Bank of America. Large prime brokerage firms today typically monitor the risk within client portfolios by either Value at Risk (VaR) or "Rules Based" stress testing. Stress testing entails running a series of what-if scenarios that identify the potential gains or losses for each position due to adverse market events. Hedge Funds and Prime Brokers (Risk Books 2006). previously one of the dominant prime brokers. was merged into JPMorgan Chase in March. sold PB business to BNP Paribas * Barclays Capital * (Bear Stearns. 2008) * BNP Paribas * Calyon Financial * Citigroup * CIBC World Markets * Credit Suisse * Deutsche Bank * Dresdner Kleinwort PrimeBrokerageGuide.com PrimebrokerageAssociation.org 78 . Examples of stress test scenarios include: * Flight to Quality * 1% up or down parallel movement in 10 year treasury yield curve [edit] Sources of Information Berman. Other forms of risk inherent in Prime Brokerage include operational risk and reputational risk.

India Branches]) * Merlin Securities (Introduces through JP Morgan and Goldman Sachs) * Merrill Lynch (bought by Bank of America .org 79 . Fortis suggests simply talking with the staff and manager.com PrimebrokerageAssociation.The Prime Brokerage Book * Fidelity Investments * Fortis * Goldman Sachs * Interactive Brokers * Jefferies & Company * JPMorgan Chase * Lehman Brothers (Bought by Barclays Capital [US Operations].September. The article focuses primarily on identifying potential problems by maintaining contact with hedge fund managers and thoroughly looking into the operations. 2008) * Morgan Stanley * Nordea * Northern Trust * NewEdge Group (ex Fimat & Calyon Financial) * RBS * RBC Capital Markets * Rabobank * Scotia Capital * SEB * Triad Securities * UBS Source Hedge Fund Due Diligence Last month someone sent me this resource on due diligence. This article advocates a close relationship with the manager. 2008 [Asia. EU. Although much can be learned from traditional due diligence. They suggest that a practical understanding of psychology helps detect the underlying factors that could effect a manager's performance. Fortis offers this guide to investment due diligence which goes beyond the initial selection process. adding a level of PrimeBrokerageGuide. Bought by Nomura September.

com PrimebrokerageAssociation. Here is the full resource: Fortis Due Diligence Article Prime Brokers in Asia / Japan / China I recently read a short article about the prime brokerage business in Asia through FinAlternative's prime brokerage survey. and prime brokerages are bolstering their capacity in Asia by buying up talented executives from the top firms. being the fastest growing hedge funds market.org 80 . Asia. has become more and more important for successful prime brokerages. Meanwhile. Asia has a vastly expanding hedge fund industry.The Prime Brokerage Book transparency for the investor and includes helpful tips for building this relationship. Prime Brokerage Business Update Here are a few details from a recent report from Finalternatives on the prime brokerage business. This report mentioned that prime brokerage firms expect $11 billion in hedge fund revenues this year. and has plans to have another series of major hiring. JPMorgan and CitiGroup are playing catch-up with industry giants by bolstering their prime brokerage units. the more established Deutsche PrimeBrokerageGuide. consequently major prime brokerage firms are vigorously competing for clients. Goldman Sachs now claims five managing directors of its Asian prime brokerage division. Major firms like Merrill Lynch and Morgan Stanley have struggled to retain their top executives in Asia from rival prime brokerages.

Merrill Lynch and Goldman Sachs are battling for dominance over the prime brokerage industry. While other major firms try to catch up by buying up talent from rivals. smaller prime brokerage shops are becoming more attractive than the largest firms. I am about 1/3 of the way through the book right now and will publish a review of it once I am done reading the whole thing. Does anyone else know of any great books on this niche of the hedge fund industry? Thanks in advance for any help you can lend me Prime Brokerage Sales While the credit crisis has hurt most financial firms. as well as superior technology and support capabilities. As major brokers reduce their lessprofitable hedge fund accounts. Another opportunity for boutiques is that the big firms are cutting back on staff. Goldman Sachs and Morgan Stanley. More and more hedge funds turn to the two firms because they have a strong reputation. As hedge funds look out for their best interest. The two biggest prime brokers. Morgan Stanley and Goldman Sachs are securing their dominant positions in prime brokerage. some boutique prime brokers have benefited.com PrimebrokerageAssociation. are building their reputation as the best in the industry. Morgan Stanley. Prime Brokerage Book Review I'm reading a book right now on prime brokers called Hedge Funds and Prime Brokers. boutique primes take on these clients.org 81 .The Prime Brokerage Book Bank. This is the only book I have been able to find on prime brokerage. making it easy PrimeBrokerageGuide.

The Prime Brokerage Book to attract seasoned talent to join the smaller firms. A recent FINalternatives survey revealed that over a third of all hedge funds rated their prime broker's capital capabilities as "poor". The credit crisis has in many ways helped boutique prime brokers. Many of these veterans bring some clients with them too. but it has also hurt their capital introduction capabilities. This is leading prime brokerage The main point of change that this article pointed to was the PrimeBrokerageGuide. If you haven't read it already there was an interesting article put out by ICFA a few days ago about the changing landscape of the hedge fund prime brokerage business model. I was in New York yesterday discussing some of these ongoing changes with a few prime brokerage professionals and they mentioned that several times a year there are events.org 82 . Many average-size funds are not given the attention from big firms that the smaller prime brokers promise. But the survey also showed that nearly 75% of hedge fund managers that called their prime broker's personal service "poor" are shopping for a new one. by traditional investment managers. boutique prime brokers will. opportunities and regulatory environments.com PrimebrokerageAssociation. which slightly reshape their industry. and as long as this neglect continues. Prime Brokerage New York / Evolution The prime brokerage industry is constantly evolving adapting to new client demands.

in leveraged investments. driving greater demand for prime brokerage services.48trn in 2012. These factors will push margins lower and increase operational requirements in the prime brokerage business. Prime Brokerage Survey A Recent Prime Brokerage Survey FinAlternatives just released a prime brokerage survey. with 86 per cent of major asset managers expecting to run 130/30s by mid-2009. placing greater emphasis on custody. reporting and risk management and de-emphasizing capital introduction and leverage." "But traditional asset management clients are forcing prime brokers to adapt their business model. Vodia said.com PrimebrokerageAssociation. and most hedge funds need help marketing and raising capital. The survey digs into the quality of PrimeBrokerageGuide. it contains some interesting details on how satisfied hedge funds are with their prime brokerage service providers. Every year the field becomes more competitive.The Prime Brokerage Book widespread interest in hedge fund‘s clients to service clients who also run 130/30 and long only portfolios as well.65trn today to $4.org 83 .equivalent to $1. The firm predicts that leveraged assets will increase from $2.95trn ." While I can see why the largest of institutional money managers are not going to be drawn by the hopes of capital introduction I still believe that those prime brokers who do offer capital introduction services will have a competitive advantage while competing for the business of hedge fund managers here in the US. "According to a recent Vodia Group survey traditional asset managers have 3 per cent of their asset base .

UBS (7%.com PrimebrokerageAssociation. Prime Brokerage Market Share A good read titled "Battle of the Bulges" pointed out that competition for gaining prime brokerage market share is growing fiercer with more than $11 billion in expected hedge fund revenues in 2008. followed by Bear (21%. The fight for market share is even more intense among the industry's top players. Credit Suisse and BNP Paribas. BNP Paribas bought Bank of PrimeBrokerageGuide. Another interesting point was that poor personal service was the #1 reason that a hedge fund manager would switch prime brokers. $119 billion). JPMorgan Chased was only ranked eighth in the Lipper survey with just a 2. in terms of market share based on assets. a 15% increase over 2006 (reported by TABB Group). As of year-end 2006. now it is given a quick entry into prime brokerage as long as Bear's hedge fund clients are successfully locked down. UBS. including JPMorgan Chase. $136 billion). execution and personal service received from their prime broker. which collectively owned about two-thirds of the market. Morgan Stanley and Bear. other major financial services firms are stepping up their prime brokerage efforts. Deutsche Bank.org 84 . the Lipper HedgeWorld prime brokerage league table ranked Morgan Stanley first (with 23% of the market and $153 billion in assets). For years the prime brokerage industry has been dominated by three firms—Goldman Sachs. and Morgan Stanley and Goldman Sachs struggle to maintain their dominance in the industry. Goldman (18%. What is interesting was that 38% of hedge fund Manager respondents noted that their prime broker's capital introduction capabilities were non-existent or very weak. $25 billion). Here is the full report and prime brokerage survey.The Prime Brokerage Book capital introduction. $47 billion) and Credit Suisse (4%. As Bear collapsed in March 2008.3% market share.

com PrimebrokerageAssociation. it may not get anywhere because we're pretty happy with our service. The recent turbulence in the prime brokerage industry also accelerated the trend of hedge funds moving away from replying on just one prime broker. "We have long-standing relationship with our prime brokers. As Michael Guarasci. Guest post by Yifei Huang Prime Brokerage Association (PBA) The Prime Brokerage Association (PBA) is a 600 person strong networking organization focused on the hedge fund prime brokerage industry.S. Traditionally hedges funds are unwilling to switch prime brokers or increase the number of their prime brokers (TABB report).org 85 . To Join the PBA Click Here PrimeBrokerageGuide. It's not easy to switch prime brokers." (full article). thus was instantly made one of the largest prime brokers in the U. This created considerable opportunity for new players to enter or existing players to take a bigger piece of the market share. as pointed out in an article by Merrill Lynch: "The multi-prime broker environment overcoming the challenges and reaping the benefits" (download the pdf). serves a source of inter-industry networking and works to improve the overall image of the prime brokerage industry to the general public. The Prime Brokerage Association provides free-to-access articles and resources to prime brokerage professionals. Now more and more hedge funds are adding prime brokers to limit counterparty risk since the fall of Bear (ref). so if a new company wants to come in and do business with us. partner at hedge fund Indus Capital Partners said.The Prime Brokerage Book America's equity prime brokerage division that was ranked the sixthlargest in the country by assets at the end of 2006 by Lipper HedgeWorld.

Many managers with negative or sub-par performance would still like to grow their business but the fact is most investors won't consider hedge fund managers who are both relatively small and have mediocre or poor performance. they hear hundreds of stories and see as many teams pitching their outlook on the markets each year. Here the areas we suggest you investigate before moving your prime business:  How many professionals are dedicated to working on your capital introduction team?  What are your capital introduction fees on top of the regular prime brokerage fees?  Do you have a detailed description of what your capital introduction services includes and does not include?  How has your capital raising track record evolved since you began offering capital introduction services to your clients?  How does your firm partners or work with third party marketing firms or outside capital introduction experts? In addition to these questions search their website and online for capital introduction jobs related to the firm. The Problem With Capital Introductions The main problem with capital introductions being made by prime brokerage firms is that many firms are not competitive enough to market. This leaves prime brokerage firms with two choices . If they are hiring 10 year industry veterans or fresh college graduates this can tell you a bit about their approach as well.offer capital PrimeBrokerageGuide.com PrimebrokerageAssociation.org 86 . there is nothing engaging enough that will convince investors to look past those two facts.The Prime Brokerage Book Capital Introduction Team Due Diligence It is important to conduct due diligence on the capital introduction team you might begin working with before you sign up for their related prime brokerage services.

hedge funds are starting to look at migrating some of their business. US Prime Brokerage I recently commented about how unwise it was to only have one prime broker and separately about how concerns were starting to focus on Morgan Stanley and Goldman. since those brokers didn't accept "dodgy" accounts. marketing material scrubbing.com PrimebrokerageAssociation. They want to provide this service to everyone possible but by nature only 10-25% of all clients really qualify for the service. Goldman and Morgan Stanley were the prime brokers firms wanted to be with. For most firms. etc. an account with GS or MS was a seal of approval that they could show to investors. This may seem straightforward but it is often an unsaid thorn in the side of prime brokerage firms offering capital introductions for hedge fund managers. it appears that prime brokerage clients of Morgan Stanley and Goldman have started getting jitters. something that would have until this weekend seemed laughable.The Prime Brokerage Book introduction services knowing that there is almost no chance of raising assets or tell the hedge fund manager that they will not be able to market their strategy. Permanent Link: US Prime Brokerage PrimeBrokerageGuide. The best prime brokers will often help with pre-marketing activities such as operational and risk assessments. With Lehman Administrators confirming that there would be no early return of Prime Broking client assets. to the delight of other prime brokers with banking parentage. Well.org 87 . newsletter development. Until now.. Read more here.. They dominated the prime broking market and had their choice of which clients to accept.

com PrimebrokerageAssociation. Prime Brokerage Clearance Services Clearing is one of the many services prime brokerage firms offer.The Prime Brokerage Book Prime Brokerage Chicago I recently interviewed a prime brokerage partner in Chicago.org 88 . so they can acquire the leverage needed for their strategies.org. Lately most hedge funds which I have spoken to are switching prime brokerage firms or adding a second prime broker due to main reasons: Service Issues Capital Introduction Services Many funds seem to care less about some of the mechanics behind how their funds are serviced as they seem almost identical . An Explanation | Prime Brokerage Derivatives One of key functions of prime brokers is to provide financing to its hedge fund clients. Since with leverage can come PrimeBrokerageGuide. IL and he shared the following industry trends with me:  Capital introduction services are in higher demand than ever  The strongest prime brokerage teams aren't always the most well known or largest in size as they have problems serving all of their clients well  Service is still a competitive advantage for many prime brokerage firms who are used to working with clients tired of the large prime shops not giving them any service If you are looking for prime brokerage contacts in Chicago please email team@PrimeBrokerageAssociation.while caring greatly about the level of service and any capital introduction services which may exist while working with a certain prime brokerage shop.

To follow the example above. managing principal of Vodia Group. and is usually termed "synthetic prime brokerage". This way the hedge fund achieves a leverage of 4 to 1 (assuming only long positions). the portfolio actually belongs to the prime broker. "Leverage is being closely watched. The first is by providing margin financing.The Prime Brokerage Book increased risk. "…the amount of leverage being utilized is being reviewed much more carefully than it has been in the past. PrimeBrokerageGuide. the hedge fund holds a portfolio with a value of $100." said Josh Galper.com PrimebrokerageAssociation. one approach takes the form of a managed account swap. thereby providing leverage of 4 to 1. the prime broker generally determines the degree of leverage that can be extended to hedge funds using a combination of stress-testing and value-at-risk. For example. As margin for the swap. which advises hedge funds on borrowing strategies. using $25 million of its own assets and $75 million of margin debt provided by the prime broker.org 89 . and charges the interest in the form of a swap payment received from the hedge fund. Through this synthetic prime brokerage service. on a portfolio by portfolio (or client by client) basis." (See article from MarketWatch) There are two major methods that a prime broker can lend leverage to a hedge fund. the prime broker requires the hedge fund to post $25 million of equity. and the prime broker gains interest on the debt. The prime broker sets up an account advised (or managed) by hedge fund manager who has trading discretion. Due to the recent credit crunch. the hedge fund borrows some portion of the security's value from the prime broker. where the hedge fund is the counterparty to a total return swap on that account. for obvious reasons. So different from the first method. The prime broker then enters into a total return swap with the hedge fund. in other words. the prime broker has an account with $100 million of its own assets. the leverage used by the fund is determined by the amount of margin on the swap required by the prime broker. in this case even though hedge fund manager trades the account to implement the hedge fund's strategy. The account is advised by the hedge fund manager. While the structure of this form of financing varies. The alternative way of extending leverage is through the OTC derivatives.

according to an article by HedgeWeek. a top tier global investment bank and institutional securities firm. The new system will allow CSFB to provide its institutional clients with risk assessment across their holdings in the equity. Advent Geneva® now serves eight out of ten of the top prime brokerage firms worldwide and is innovative beyond competitors as to its global investment management and accounting platform. Chicago. Advent Software has been selected by Jefferies & Company Inc.The Prime Brokerage Book Many hedge funds use synthetic prime brokerage service as part of a full service prime brokerage agreement . Recently. he said. is headquartered in San Mateo. AIG Trading.com PrimebrokerageAssociation. The company has recently been selected to assist ABN AMRO by providing technological enhancements for use in their developing FX prime brokerage service. Credit Suisse First Boston has added a customized risk assessment and trading system to its prime brokerage unit. fixed income. Morgan Stanley. JP Morgan Chase. CSFB has been considering systems to accomplish this for more than a year. foreign exchange and derivatives markets. and Societe Generale. global head of prime services. according to Philip Vasan.. to provided their Advent‘s Geneva® to help in management of Jefferies‘ growing prime brokerage offerings. and Tel Aviv. Deutsche Bank. Source PrimeBrokerageGuide. with offices in New York.org 90 . CSFB. London. Source In a bid to gain market share in the ultracompetitive prime brokerage market. Customers include ABN AMRO. California.with equity swaps used side by side with stock loan and other services for particular parts of their portfolios. Source: Hedge Funds and Prime Brokers Prime Broker Investments in Technology Traiana is a leading provider of financial technology used by banks worldwide and prime brokers involved in the foreign exchange industry. Traiana.

the hedge fund holds a portfolio with a value of $100. So different from the first method. the hedge fund borrows some portion of the security's value from the prime broker. in this case even though hedge fund manager trades the account to implement the hedge fund's strategy. so they can acquire the leverage needed for their strategies." (See article from MarketWatch) There are two major methods that a prime broker can lend leverage to a hedge fund. one approach takes the form of a managed account swap. The first is by providing margin financing.org 91 . and charges the interest in the form of a swap payment PrimeBrokerageGuide. For example. The alternative way of extending leverage is through the OTC derivatives. "…the amount of leverage being utilized is being reviewed much more carefully than it has been in the past. managing principal of Vodia Group. in other words. While the structure of this form of financing varies. "Leverage is being closely watched. This way the hedge fund achieves a leverage of 4 to 1 (assuming only long positions). The prime broker sets up an account advised (or managed) by hedge fund manager who has trading discretion.The Prime Brokerage Book An Explanation | Prime Brokerage Services of Hedge Funds One of key functions of prime brokers is to provide financing to its hedge fund clients. the prime broker generally determines the degree of leverage that can be extended to hedge funds using a combination of stress-testing and value-at-risk. on a portfolio by portfolio (or client by client) basis. which advises hedge funds on borrowing strategies. The prime broker then enters into a total return swap with the hedge fund." said Josh Galper.com PrimebrokerageAssociation. Since with leverage can come increased risk. for obvious reasons. Due to the recent credit crunch. using $25 million of its own assets and $75 million of margin debt provided by the prime broker. and the prime broker gains interest on the debt. the portfolio actually belongs to the prime broker. and is usually termed "synthetic prime brokerage".

capital introduction and business consulting. according to an article by HedgeWeek.com PrimebrokerageAssociation. Ranking of the prime brokers in 2007 according to the aforementioned criteria can be found PrimeBrokerageGuide. the prime broker has an account with $100 million of its own assets. To follow the example above. Source: Hedge Funds and Prime Brokers Prime Brokerage Rankings A quantitative and comprehensive analysis of global prime brokerage firms was presented in the 2007 Lipper HedgeWorld Prime Brokerage League Table. financing. Goldman Sachs.The Prime Brokerage Book received from the hedge fund. Surveys by Alpha Magazine indicate that the most important aspect of service in prime brokers was operations. UBS and Credit Suisse.with equity swaps used side by side with stock loan and other services for particular parts of their portfolios.org 92 . trade execution and trading technology. The research shows that the largest prime brokers by total 2006 assets are Morgan Stanley. where the hedge fund is the counterparty to a total return swap on that account. securities lending. Bear Stearns. As margin for the swap. the leverage used by the fund is determined by the amount of margin on the swap required by the prime broker. followed by client service. reporting and reporting technology. The account is advised by the hedge fund manager. thereby providing leverage of 4 to 1. the prime broker requires the hedge fund to post $25 million of equity. Many hedge funds use synthetic prime brokerage service as part of a full service prime brokerage agreement . Through this synthetic prime brokerage service.

com PrimebrokerageAssociation. The financing and lending spreads. Hedge funds that account for about 10 percent of Morgan Stanley's prime-brokerage balances withdrew their money or told the firm they planned to (bloomberg news). and synthetic financing products. after the financial turbulence in the past six months. said Mehraj Mattoo."). Instead. BNP Paribas.The Prime Brokerage Book on their webpage. client short sales (short balances). client deposits (credit balances). "there was likely to be a concentration of prime broking business with a smaller number of large service providers". Guest post by Yifei Huang Prime Brokerage Fees Prime brokers don‘t charge fees for many of the services they provide to hedge funds. clients who take substantial short-selling or major amounts of leverage are representatives of more lucrative opportunity than clients who do relatively less short selling and/or use minimal leverage For example. Credit Suisse and Citigroup (more). commissions from trading. Therefore. and fees for the settlement of transactions done away from the prime broker. which are charged in basis points on the value of client loans (debit balances). Commerzbank's fund of hedge funds unit. Banks that are taking on new hedge-fund business include JPMorgan (a spokesman confirmed that the bank has seen a significant jump in volume and "they are managing it well. global head of Comas.org 93 . in an article by David Walker "How many prime brokers will be left?" There has also been significant brokerage business flow among the remaining prime brokers. Deutsche Bank. that hedge funds will pay on Wall Street PrimeBrokerageGuide. However. profits are usually derived from three sources: spreads on financing (including stock loan). it is said.

Prime Brokerage Conference | Review Here is a list of prime brokerage related conferences offered in the past: IBC's Annual Hedge Fund Administration and Prime Brokerage Conference The pdf brochure for the meeting held in Apr 2008 can be downloaded here There was a 50-minute panel discussion ("How is the Prime Broker & Hedge Fund Relationship Evolving?") about the following topics: Comments on the existing prime broking scene What do COO's see as a major problem in the structuring of prime brokerage How do prime brokers respond to this How are prime brokers adapting their business offerings to new hedge fund strategies Can one prime broker be all things to all hedge fund managers? Panellists included Stephen Foster (CREDIT SUISSE) and Todd Johnson (CITI). City & Financial: The Future of Prime Brokerage (One Day Conference) Offered in 2006(detail) and 2007(detail). and Goldman Sachs Group Inc.The Prime Brokerage Book record fees next year for brokerage services.org 94 . This business is currently dominated by Morgan Stanley. both conferences had Timothy Spangler as the chairman.com PrimebrokerageAssociation. The pdf brochure for the 2007 meeting can be downloaded here Smith Barney Citigroup Financial Services Conference (annually) SIFMA's Fixed Income & Derivatives Operations Conference (Oct 2007) PrimeBrokerageGuide. Sources say that prime-brokerage fees may increase significantly. to $9US.9-billion in 2009. by almost a third.

has recently hired Senior professionals. Inc. Fink has joined in order to focus on prime brokerage sales.org 95 . Hear what investors needs are with respect to these services and what dealers can do to meet these needs. to join their company as Senior Vice Presidents. Recently. Source Jefferies & Company has expanded and is now officially a part of prime brokerage business. This will help to meet the growing demand of the best financial technology for hedge fund clients within their prime brokerage unit.The Prime Brokerage Book "Listen to senior operations professionals discuss the significance of Prime Brokerage services to investors. The company has been adding to its staff PrimeBrokerageGuide. convertible and international securities. Along with this they provide institutional brokerage. Their job will be to focus on capital introduction. for high net worth investors and investors for institutions." (download pdf file: "Prime Brokerage: The Evolving Landscape") by Yifei Huang BANK PRIME BROKERAGE OFFERINGS Jefferies Prime Brokerage Jefferies & Company Inc. Source Linedata Services is a leading global provider of the latest in the financial technologies market. Robert E.com PrimebrokerageAssociation. Robin H. operations and technology. and Jeffery M. Enslein Jr. securities research and asset management.. McCarthy. high yield. A third. Jefferies is also a leading provider in equity. is a global investment bank and institutional securities firm who provides capital market and financial advice services to its clients. Linedata has been selected by Jefferies & Company‘s Prime Brokerage Unit in order to implement the use of their Long View trading Order Management System for its hedge fund clients. Source Jefferies & Company. Hear how Prime Brokerage has effected the modernization of trading.

Source HSBC Holdings Plc. and John Kunze. Source HSBC Prime Brokerage Last year HSBC Securities Services was ranked #1 in R&M Fund Accounting and Administration Survey for a third year in a row.com PrimebrokerageAssociation. The company is now in cooperative talks with various hedge funds with more than $100 billion in assets. They are now offering local fund accounting. It is now attracting hedge fund businesses because of its focus on the concerns of prime brokers under the thread of market collapse. These heads will hold similar position in Jefferies heading the new development of the company. is Europe's biggest bank by market value. Source HSBC Securities Services (HSS) is soon to provide alternative fund services with in the nation of Australia. Some wellknown ones include Penn Miller-Jones. former Senior Salesman. prior head of technology to name a few. These services would include foreign exchange and treasury products.org 96 . The questionnaire for the survey ranked various providers on 34 aspects of the services they provide from services such as transaction processing. HSS is a part of the Bank that has grown greatly in recent years and it now has 382 billion PrimeBrokerageGuide. R&M Surveys being an independent market research administration that specializes in investor services industry.The Prime Brokerage Book and implementing the talented of its previous affiliate Bank of America. and absolute return fund managers as well as private equity partners. as well as the quality of employees and the service value for the money. to communications. investor servicing and financial reporting to hedge fund managers. They are now focused on providing some services offered by prime brokers to its single-strategy hedge fund clients. in addition to the traditional administration and custody functions. fund of hedge fund managers.

securities lending. Being a fine partner. Along with this it has reached first place in both leading and cross-border clients. research. and capital introduction. securities lending. Source CIBC World Markets is a leader in prime brokerage in Canada. CIBC Mellon recently informed the public of its reappointment by Russell Investments Canada to provide services for them as well. It is a Canadian provider of Prime Brokerage services for alternative investment managers. They provide a prime brokerage accounting and reporting platform for which hedge fund companies and clients can use with a wide selection or group of services in trade execution. and exchange services in Canada. as relayed by leading clients from Global Custodian Magazine‘s 2008 Agent Banks. Source PrimeBrokerageGuide. and exchange services within the nation of Canada.com PrimebrokerageAssociation.org 97 . Source CIBC Prime Brokerage Some notes and stories related to prime brokerage services offered by CIBC. They provide services such as multi currency accounting. Russell Investments Group provides a wide variety of quality investment products. information delivery. Source CIBC Mellon is jointly owned by Canadian Imperial Bank of Commerce and The Bank of New York Mellon Corporation. among other services.The Prime Brokerage Book Australian Dollars in funds under custody as of July 2008. CIBC Mellon Global Securities Services Company is a leading provider of finance services sizeable institutions and corporations. Recently CIBC Mellon Global Securities Services announced it reached top rank in the Canadian sub-custody. securities lending. reporting. A superior leader in providing asset servicing.

000 employees. ―The proposed acquisition of Lehman Brothers North American investment banking and capital market operations accelerates the PrimeBrokerageGuide.08) Barclays cut its prime brokerage staff as it finishes integrating the Lehman business it acquired. including its prime brokerage. New York-based Lehman filed for Chapter 11 on Monday after talks with Barclays about buying the whole of Lehman broke down. Barclays also agreed to pay another $1. About 100 people or 30% of the staff in the prime brokerage unit were let go. The cuts were across both firms and all roles where there was overlap between Barclays and Lehman. which has about 10. just days after effectively forcing Lehman into bankruptcy.5 billion for Lehman‘s Times Square headquarters and two data centers in New Jersey. source Resource #2: Barclays has agreed to buy Lehman Brother‘s North American investment-banking group.000 that Citi recently said it was laying off.com PrimebrokerageAssociation. But yesterday. according to someone familiar with the matter. Although the cut seems small given the more than 50. Some of the staff found other jobs at Barclays the source said.org 98 .000 people and Goldman Sachs is planning a 10% cut. according to Bloomberg.The Prime Brokerage Book Barclays Prime Brokerage Here is a collection of stories related to Barclays Prime Brokerage Services: Resource #1: (12. it agreed to pay $250 million for Lehman‘s investment banking and capital markets operations in North America. JPMorgan Chase is planning to lay off about 3.1. Barclays snapped up the Lehman unit after Lehman went into bankruptcy in mid-September. it still adds to the continued exodus of staff on Wall Street.

Lehman said in a statement.org 99 . ―This is a wonderful outcome for a great number of our employees that will preserve and strengthen our terrific franchise. write Greg Farrell and Henny Sender in New York .com PrimebrokerageAssociation. in what is being viewed as a massive flight to safety.. prime brokerage business had been migrating away from Lehman Brothers.‖ Barclays CEO John Varley said. Read more here.The Prime Brokerage Book execution of our strategy of diversification by geography and business in pursuit of profitable growth on behalf of our shareholders. Credit Suisse Prime Brokerage Services Notes Here is a collection of publicly available articles on Credit Suisse Prime Brokerage Services: Scores of big hedge funds have been shifting billions of dollars in prime brokerage business away from Morgan Stanley and Goldman Sachs to operations housed in large commercial banks.‖ Lehman CEO Richard Fuld said.S.. Traders at JPMorgan Chase. as the market perception of that firm began to worsen. Deutsche Bank and Credit Suisse are among those who describe themselves as "inundated" with business from hedge fund managers moving their trading and execution away from the last two remaining independent investment banks. in particular increasing the percentage of Barclays earnings sourced in North America. Citigroup. Barclays will also ―immediately commence discussions‖ about buying Lehman operations outside of the U.. In recent weeks. PrimeBrokerageGuide.

bringing its total staff to about 46. filed for bankruptcy protection in mid-September. the hedge-fund industry has been especially vulnerable to a focus on stocks and a tendency to go long. the head of Morgan Stanley's prime brokerage in Asia. Morgan Stanley's prime brokerage. Since June 2007. the gradual ebb of prime brokerage business away from the independents rose to a flood. The Eurekahedge Asian Hedge Fund Index is down 21.6% so far this year. has been hurt by a worldwide hedge-fund slump. which manages mutual funds and other investment instruments. It said it would reduce 10% of its staff in institutional securities. Baker's departure comes a week after Morgan Stanley confirmed additional worldwide job cuts. a company spokesman confirmed Wednesday. Concerns about the stability of investment banks PrimeBrokerageGuide. The hedge-fund industry has been struggling against trailing performance and a rising tide of redemptions. 31.17. In Asia. Read more.500 employees. is leaving the firm.The Prime Brokerage Book But after Lehman's collapse into bankruptcy protection on Monday. 2008. along with Merrill Lynch's decision to be acquired by Bank of America. Morgan Stanley Prime Brokerage Below are a series of resources related to Morgan Stanley's Prime Brokerage business: Resource #1: (11. one of the two largest in the Asia. were hit after Lehman Brothers Holdings Inc.. in particular.500 as of Aug.com PrimebrokerageAssociation. but declined to comment further. which includes prime brokerage. The firm has already cut about 10% of its work force this year. Morgan Stanley's prime brokerage operations.08) Kurt Baker.. as well as 9% in asset management.org 100 . the bank has cut around 4.

The Prime Brokerage Book caused some hedge-fund clients to move assets. passion and recent experience at one of the world‘s most respected alternative investment firms will only further serve to reinforce our commitment to our clients and our staff. He will be based in New York and report to Rich Portogallo. Mr. Prime Brokerage.‖ said Rich Portogallo. ―Stu had been instrumental in helping to build our prime brokerage business into the recognized market leader today.‖ Mr.D. content. 48. He graduated from Wesleyan University in 1980. PrimeBrokerageGuide. Hendel received his J. His experience and skill make him perfectly suited to continue our momentum in this business. most recently serving as Co-Head of U. Head of the U. ―Stu's innovation. Mr. Mr. Mr. Global Head of Equities and CoHead of Institutional Sales and Trading at Morgan Stanley.‖ Prior to joining Eton Park. where he served as the Chief Operating Officer since that firm was organized in 2004. Hendel will rejoin Morgan Stanley in early 2007. Source Resource #2: Stu Hendel will rejoin the Firm as Global Head of Prime Brokerage. Hendel worked in the legal division of Morgan Stanley from 1989 to 1993.org 101 . ―We are thrilled to have him back. from Cornell Law School 1983 where he served as business manager of the Law Review.S. Hendel. ―We are delighted that Stu Hendel has chosen to return to Morgan Stanley. Prior to that.‖ said Jerker Johansson.com PrimebrokerageAssociation. Hendel rejoins Morgan Stanley from Eton Park. Hendel spent 15 years at Morgan Stanley. He held a number of senior management positions in Prime Brokerage from 1993 to 2004. Mr. Mr. Equity Division and Global Equity Financing Services. will oversee the Firm‘s global prime brokerage business focusing on growing Morgan Stanley‘s market leading franchise and meeting the evolving needs of clients.S. In this role. Hendel will also work closely with senior management in the Equities and Fixed Income divisions on defining and executing strategic direction for the group.

founder of hedge fund Kellner. In the last 9 months there has been more prime brokerage account closing.. Read more.08) Great piece here by the FT about how Goldman Sachs is booting some of their hedge fund clients off of their platform. prime brokers raised the cost of funding and many hedge funds were forced to sell convertible and junk-rated bonds that dealers can't readily lend.. creating and multi-priming than there was over the previous 3 years.com PrimebrokerageAssociation." That review is especially intensive for hedge funds pursuing strategies that involve trading securities that aren't very liquid. Such securities have become "dead-end collateral" in Wall Street parlance. Here is the story excerpt: Goldman Sachs is cutting back the number of its hedge fund clients in an indication of tougher market conditions and of the changes sweeping through what was once the premier investment bank. such as the computer-driven strategies that seek to profit from small price discrepancies. Here's a short story related to this topic: Resource #1: (11. such as convertible bonds. But in recent months." says George Kellner. such strategies appeared liquid and borrowing was cheap. During the bull market.The Prime Brokerage Book Goldman Sachs Prime Brokerage Many are now wondering what surprises Morgan Stanley and Goldman Sachs might have in store after several other large banks and insurance firms have fallen.6.org 102 . This opens the doors again for independent or mini prime brokerage shops to pick up the pieces left behind by larger operations such as Goldman. or that rely on the massive use of borrowed money. DiLeo. "They are reviewing many of their relationships. "Their ability to leverage themselves has been affected by their new reiteration. PrimeBrokerageGuide.

hoping to ―limit short-selling‖ of the stocks. Lehman/ Barclays Prime Brokerage Services Barclays Plc. Read more. will acquire the North American investment-banking business of bankrupt Lehman Brothers Holdings Inc. or plan to do so.'s third.75 billion. it said today in a statement.‖ DJ notes that Cali‘s teachers pension system yesterday stopped lending shares of both stocks. apparently.org 103 . Dow Jones Newswires is reporting that the California Public Employees Retirement System (CALPERS) is ―no longer lending out shares‖ of Goldman Sachs (GS) and Morgan Stanley (MS). three days after abandoning plans to buy the entire firm .K. the article suggests: Lehman has frozen ―billions‖ in hedge fund money inside its prime brokerage unit since it filed bankruptcy on Monday. Pension funds try and strangle short sales But some are fighting the good fight. the U. a CALPERS spokesperson. The wire quotes Clark McKinley.5 billion for the New York headquarters and two data centers.The Prime Brokerage Book Resource #2: The spiraling downward of financial confidence has sprouted up in various areas. Bloomberg reports that hedge funds making up ―less than 10%‖ of Morgan Stanley‘s prime brokerage balance are withdrawing their assets from the firm. Barclays rose as much as 11 percent in London trading after it agreed to pay $250 million in cash for the Lehman operations and $1.‖ The article notes that Deutsche Bank AG (DB)... and sent a letter to 60 of its fellow pension funds urging them not to lend.biggest bank.com PrimebrokerageAssociation. as saying ―We don‘t want to inadvertently contribute to the instability of these companies or the market. for $1. The London-based bank plans to raise at least 600 million pounds ($1. Citigroup (C).‖ The threat to hedge funds‘ assets is real.1 billion) in a stock sale to help fund the PrimeBrokerageGuide. The article cites ―a person with direct knowledge of the matter. Credit Suisse Group AG (CS) and JPMorgan Chase (JPM) ―are picking up Morgan Stanley‘s clients.

16. "The purchase includes the equities and fixed-income sales. adds to BNP Paribas's existing relationships with major hedge funds in the region. merger advisory and prime brokerage units." Read more.5 billion. Lehman Brothers Bankruptcy BNP Paribas Prime Brokerage Here is a collection of publicly available stories on BNP Paribas SA prime brokerage services: Resource #1: (11. France's biggest bank. commodities and foreign exchange. trading and research businesses.K.. Barclays said.. global head of BNP Paribas hedge fund relationships.org 104 .com PrimebrokerageAssociation.) LLP as it seeks to lure clients in the region from rivals. according to Talbot Stark. a Londonbased hedge fund manager that has an office in Hong Kong and oversees about $7. The new contract with CQS. He declined to name other existing clients.08) BNP Paribas SA.The Prime Brokerage Book deal and may buy other Lehman units. ``We have prime brokerage relationships with three or four of the PrimeBrokerageGuide. won prime brokerage business in Asia with hedge fund CQS (U.

filed for bankruptcy on Sept. ``We're in discussions with several other key players that are making decisions to change their prime brokerage providers and are seeking alternative providers that are established and committed to the region. global head of BNP Paribas hedge fund relationships.com PrimebrokerageAssociation. ``That acquisition now looks timely in these markets as people are in the middle of a flight to quality.'' said Talbot Stark.org 105 . Prime brokerages offer hedge funds services such as clearing. and Bear Stearns Cos.'' Stark.'s prime brokerage unit. and Morgan Stanley were ranked by a Westborough. said it got a ``flood'' of clients at its prime brokerage since Lehman Brothers Holdings Inc.'' Commercial banks such as BNP are seeking to win customers from established players in the hedge fund market after the collapse of Lehman Brothers Holdings Inc. the company said. 43. BNP Paribas expanded its services for hedge funds in June. they will be secure. ``Foremost on people's minds is ensuring that wherever they decide to put assets. Goldman Sachs Group Inc. Massachusettsbased Tabb Group LLC report in May as the two biggest prime brokers worldwide. in an interview today. France's biggest bank. securities lending and financing for assets. a partner at PrimeBrokerageGuide. when it bought Bank of America Corp. custody. They also introduce fund managers to investors.'' Lehman won't return ``billions'' of frozen prime-brokerage assets ``in the short term.'' Stephen Pearson. said in a telephone interview yesterday.The Prime Brokerage Book market leaders in Asia that are outperforming their peers and look to be longer-term survivors in the Asian hedge fund market. The unit provides record-keeping. Source Resource #2: BNP Paribas SA. 15. securities lending and secured financing to more than 500 hedge funds and has 320 employees. rattled confidence in securities firms.

Global Head of Equity and Commodity Derivatives. Head of Equity and Commodity Derivatives for the Americas. We believe it is a low risk. ― Chase Prime Brokerage PrimeBrokerageGuide. Combining the Bank of America prime brokerage business with our global platform and leading derivatives business creates a prime brokerage business of choice. The deal. While Stark wouldn't specify how much money hedge funds have moved to BNP Paribas.. said: ―The strategic fit of this acquisition is excellent. the $24 billion hedge fund that started as a unit of Lehman 13 years ago.. GLG Partners Inc. Yann Gerardin. this week said some ``residual'' trades with Lehman didn't clear before it filed the biggest bankruptcy in history. said yesterday. announced on June 10 of this year.The Prime Brokerage Book PricewaterhouseCoopers. Read more. administrator for the Lehman bankruptcy. employees and technology systems. brings more than 500 clients and over 300 employees to BNP Paribas Corporate and Investment Banking. he said the company is now taking only 24 hours to sign complex prime brokerage agreements that used to take as long as three months to negotiate.. Resource #3: The FINANCIAL -. Our goal was to move the business over seamlessly for clients and employees and we have achieved this.com PrimebrokerageAssociation. The equity prime brokerage business provides a wide range of services to hedge funds and mutual funds. It is an important advantage for clients to partner with a bank like BNP Paribas .org 106 . low capital consumption. with a AA+ credit rating and global reach‖. The transaction involves the transfer of client relationships. service oriented business. said: ―We are thrilled the deal has closed on schedule.BNP Paribas is pleased to announce it has completed the acquisition of Bank of America's equity prime brokerage business. Todd Steinberg.

from short-sellers.The Prime Brokerage Book Here is a collection of publicly available articles related to Chase prime brokerage: Scores of big hedge funds have been shifting billions of dollars in prime brokerage business away from Morgan Stanley and Goldman Sachs to operations housed in large commercial banks. Permanent Link: Chase Prime Brokerage Citigroup Prime Brokerage Here is a collection of publicly available articles related to PrimeBrokerageGuide. banks whose shares face the most downward pressure. In recent weeks. along with Merrill Lynch's decision to be acquired by Bank of America.. Deutsche Bank and Credit Suisse are among those who describe themselves as "inundated" with business from hedge fund managers moving their trading and execution away from the last two remaining independent investment banks. manager of Europe's biggest pension fund. But after Lehman's collapse into bankruptcy protection on Monday." Read more. but also European. Citigroup.. prime brokerage business had been migrating away from Lehman Brothers. said: "We have stopped stock lending in several American. write Greg Farrell and Henny Sender in New York . Traders at JPMorgan Chase.org 107 . as the market perception of that firm began to worsen. in what is being viewed as a massive flight to safety. APG. the gradual ebb of prime brokerage business away from the independents rose to a flood.com PrimebrokerageAssociation. among others.

write Greg Farrell and Henny Sender in New York .com PrimebrokerageAssociation. in what is being viewed as a massive flight to safety. source Resource #3: Scores of big hedge funds have been shifting billions of dollars in prime brokerage business away from Morgan Stanley and Goldman Sachs to operations housed in large commercial banks. Five of those took severance packages.6. Citi‘s prime brokerage group will no longer offer business consultancy services to hedge funds. including 14 members of its New York office. Citigroup.org 108 . In his new role.4. In recent weeks. He will work alongside Alex Knight. prime brokerage business had been migrating away PrimeBrokerageGuide. It remains committed to other services including clearing. capital introduction and execution. a Citigroup spokesperson confirmed to IDD.The Prime Brokerage Book Citigroup prime brokerage: Resource #1 (2.09) Citigroup's Andrew Hill. the rest were laid off. As part of the downsizing. is being relocated to Singapore. Hedge Fund Alert reports. securities lending. who currently coheads the firms prime brokerage sales business in Japan. and will continue to oversee prime finance sales for Japan. Hill will work towards building the roster of hedge fund clients in Southeast Asia and India. source Resource #2: (12. Deutsche Bank and Credit Suisse are among those who describe themselves as "inundated" with business from hedge fund managers moving their trading and execution away from the last two remaining independent investment banks.08) Citigroup has reportedly cut 15% of its Citi Prime Finance staff. Traders at JPMorgan Chase. He will also oversee Citi's US prime brokerage business. Hill's specific focus will be on equity and fixed income prime brokerage. who oversees the foreign exchange prime brokerage business for Citi in Asia.

" Read more. in what is being viewed as a massive flight to safety. prime brokerage business had been migrating away from Lehman Brothers. from short-sellers. Deutsche Bank and Credit Suisse are among those who describe themselves as "inundated" with business from hedge fund managers moving their trading and execution away from the last two remaining independent investment banks.. along with Merrill Lynch's decision to be acquired by Bank of PrimeBrokerageGuide.com PrimebrokerageAssociation. Deutsche Prime Brokerage Here is a collection of articles related to Deutsche Bank Prime Brokerage Services: Scores of big hedge funds have been shifting billions of dollars in prime brokerage business away from Morgan Stanley and Goldman Sachs to operations housed in large commercial banks. but also European. the gradual ebb of prime brokerage business away from the independents rose to a flood. manager of Europe's biggest pension fund. Traders at JPMorgan Chase. as the market perception of that firm began to worsen. said: "We have stopped stock lending in several American. as the market perception of that firm began to worsen. among others. But after Lehman's collapse into bankruptcy protection on Monday. APG.org 109 . write Greg Farrell and Henny Sender in New York . banks whose shares face the most downward pressure. In recent weeks.The Prime Brokerage Book from Lehman Brothers.. Citigroup. along with Merrill Lynch's decision to be acquired by Bank of America. But after Lehman's collapse into bankruptcy protection on Monday.

said: "We have stopped stock lending in several American. from short-sellers. APG. Combining the Bank of America prime brokerage business with our global platform and leading derivatives business creates a prime brokerage business of choice.org 110 .. It is an important advantage for clients to partner with a bank like BNP Paribas. with an AA+ credit rating and global reach. employees and technology systems.com PrimebrokerageAssociation. The deal. among others.com INDUSTRY TERMS AND DEFINITIONS Derivatives Prime Brokerage Prime brokerage clients often benefit from increased capital efficiency through margin netting of entire portfolios. the gradual ebb of prime brokerage business away from the independents rose to a flood. manager of Europe's biggest pension fund." Read more. Permanent Link: Deutsche Bank DB Prime Brokerage Banc (Bank) of America Prime Brokerage French financial services provider BNP Paribas has completed the acquisition of Bank of America's equity prime brokerage business. but also European. announced on June 10. Yann Gerardin. 2008. brings more than 500 clients and over 300 employees to BNP Paribas corporate and investment banking. The transaction also involves the transfer of client relationships.. Consolidated collateral PrimeBrokerageGuide. said: "The strategic fit of this acquisition is excellent." Source Press@TriadSecurities. which provides services to hedge funds and mutual funds.The Prime Brokerage Book America. banks whose shares face the most downward pressure. global head of equity and commodity derivatives at BNP Paribas.

technology.The Prime Brokerage Book payment and one consistent valuation source provide operational efficiencies. index and correlation products-in all regions. data and accounting management. technology and operational professionals. Credit derivatives prime brokerage offers the capability to trade directly or on give-up across single name. Hedge Fund Hotels Certain prime brokers lease commercial real estate. Space for Hedge Funds Operational Support Operational Support for Hedge Funds Prime brokers act as a hedge fund's primary operations contact with all other broker dealers. they deliver the highest level of service. and then sublease blocks of space to hedge fund tenants. Global Custody Prime Brokerage Term PrimeBrokerageGuide. The interest rate derivatives prime brokerage infrastructure allows clients to trade swap and derivative structures in many currencies. An experienced onboarder leads clients through the integration phase and directs a team of documentation. These prime brokers typically provide a suite of on-site services for clients who utilize their space. clients benefit from the support and insight of experienced teams who provide innovative solutions based on an in-depth understanding of clients' objectives.com PrimebrokerageAssociation. operations.org 111 . And with a single point of contact and the full back up of a dedicated team. Prime Brokerage Client Service With 24-hour global teams in place.

The clients benefit by receiving access to conferences and research reports from institutions with which the prime brokers have relationships.org 112 . Real Time P & L Through many prime brokerage technology systems. stress tests. including those that demonstrate transparency to investors. management of risk exposure. The application also pulls analytics from third party systems. feed directly into client systems.com PrimebrokerageAssociation. clients are able to enter trades as they are executed throughout the day as well as view resulting position and profit and loss changes in real-time. including VaR. Portfolio Analytics Prime brokers offer a comprehensive suite of applications to measure PrimeBrokerageGuide. Performance Analytics Risk Exposure. custody. sensitivities to multiple risk factors and ―on-the-fly‖ risk analyses of new portfolios.The Prime Brokerage Book This service includes clearing. Their system has the capacity to perform multiple customized and ad hoc analyses. Data extracts and hardcopy reports. risk exposure services by prime brokerage firms for hedge fund managers or hedge funds Risk Exposure Prime Brokerage firms provide clients with the flexibility required to manage overall risk exposure. and asset servicing Prime Brokerage Research Services Definition Prime brokers provide clients with timely daily morning research filtered for what they want from over various sources. risk exposure management. The clients also benefit from receiving timely information throughout the day on securities and sectors of interest.

and focused on issues associated with regulatory establishment requirements in the jurisdiction where the hedge fund manager will be resident.org 113 . listed or OTC derivatives. A consolidated view of entire portfolio. provide comprehensive business and technology consulting services for hedge funds of varying size and strategy. leading edge technology to meet the ever-changing needs of the clients. customizable to fit personal needs preset the user profile and choose their own daily set of reports. cash statements. PrimeBrokerageGuide. They provide robust. maturing deals. risk exposure. or filters. they constantly research new technologies and hedge fund services to provide effective solutions for their clients. typically provided to "start-up" hedge funds. flows. and including hybrid and structured instruments. A web-based solution. as well as in the jurisdiction(s) where the fund itself will be domiciled. Hedge Fund Consulting Prime brokerage firms often offer a range of consulting / advisory services. for both equity and fixed income products. corporate actions. Through continued investment in technology.The Prime Brokerage Book risk. This includes the following: An exhaustive set of financial reports including trades. Customized Technology & Reporting They provide hedge fund managers with portfolio reporting needed to effectively manage money. Recognizing the challenges associated with building an institutional funds management business. gathering on the same reports cash.com PrimebrokerageAssociation. positions. stock lending. and the format of files. they provide clients with customized data delivery and reporting as well as end-to-end workflow solutions to deliver straight-through processing. performance and P&L.

The Prime Brokerage Book Financing of Trades and Positions Prime brokers offer an effective framework to facilitate funding needs at highly competitive rates.com PrimebrokerageAssociation. The capital efficiency gained allows clients to further enhance their investment returns Securities Lending Term Definition An important part of prime brokerage services is the ability of the prime broker to source stock in order to satisfy the short selling requirements of the fund. they can view a client's entire prime brokerage portfolio and optimize utilization of margin by recognizing off-setting positions to help manage risk. PrimeBrokerageGuide. Many arbitrage strategies are dependent for their success on being able to source stock loan. This includes Portfolio Risk Margining . They have access to hard-to-borrow securities Capital Introduction Term Definition A process whereby the prime broker attempts to introduce its hedge fund clients to qualified hedge fund investors who have an interest in exploring new opportunities to make hedge fund investments. Financing facilitates leverage of client assets. As prime brokers. Risk Management Advisory Services The provision of risk analytic technology. sometimes supplemented by consulting by senior risk professionals.org 114 .They offer risk management expertise to tailor various margining methodologies to best suit clients' investment strategies and risk intolerance. They work closely with clients to better understand their financing needs and deliver tailored solutions. The quality and depth of the stock lending service is therefore a key differentiating factor between prime brokers.

resources and videos: Prime Brokerage Sales Capital Introduction Team What is Prime Brokerage? Prime Brokerage Products & Prime Brokerage Business Services Q & A Prime Brokers Association Research Services for Hedge Prime Brokerage New York Funds Lehman Prime Brokerage Prime Brokerage Business Unit Sold Information Asian Prime Broker Growth Independent Fund Prime Brokerage Book Administration Firms Prime Brokerage Service Hedge Fund Ethics | Code of Capital Introductions Ethics Prime Brokerage Technology Prime Broker Market Share & Prime Brokerage Clearance Clients Services Prime Brokerage For Small Capital Introduction Services Hedge Funds Prime Brokerage Services Hedge Fund Pitch Book | Prime Brokerage Consulting Marketing Prime Brokers Hedge Fund Service Provider Prime Brokerage Financing & Branding & PR Equity Services List of Hedge Funds | Prime Brokerage Clearance Directory of Contacts Services Lehman Brothers Bankruptcy San Francisco Hedge Fund and Hedge Fund Prime Event Brokerage Hedge Fund Transparency GLG Partners Exposure to Act Lehman Brothers Prime Brokerage Settlement Prime Brokerage Changes | Hedge Fund Risk Evolving Industry Management Lehman Bankruptcy Victims Where are Prime Brokers List Located Prime Brokerage Fees Capital Introduction Services Prime Brokerage Mergers & for Funds Acquisitions PrimeBrokerageGuide.The Prime Brokerage Book Additional Prime Brokerage Resources Below please find a collection of miscellaneous prime brokerage articles.org 115 .com PrimebrokerageAssociation.

org .com Firms Capital Introduction Definition Derivatives Prime Brokerage Precious Metals and Foreign Exchange Services Prime Brokerage Client Service Hedge Fund Hotels Hedge Fund Operational Support Prime Brokerage Global Custody Research Services for Hedge Funds P & L .Term Definition Performance Analytics Risk Exposure Management Portfolio Analytics Term Definition Customized Technology & Reporting Financing of Trades Term Definition Risk Management Advisory Services Securities Lending Term Definition Prime Brokerage Industry | PowerPoint Overview Gating Clauses and Lock Up Periods Prime Brokerage Agreement | Contract Example Not a Hedge Fund | No Prime Brokerage Services Prime Brokerage Business | Wikipedia 116 PrimebrokerageAssociation.The Prime Brokerage Book Margin Calls | Risk of Margin Calls with Frozen Accounts Hedge Fund Training Course Future of Prime Brokerage Industry Prime Brokerage Leverage Hedge Fund Blog Prime Brokerage Software Asian Hedge Funds & Prime Brokerage Services Prime Brokerage Sales Low Stock Market Trading Volumes Prime Brokerage OTC Derivative Arrangements Prime Brokerage Accounts Flowing in New Directions Interactive Brokers Trading Platform Financial Clearing and Execution Services from Prime Brokerage Services Top 3 Prime Brokerage Trends Switch Prime Brokerage Saratoga Prime Services List of Prime Brokerage Services Prime Brokerage Regulations Prime Brokerage & Hedge Funds Prime Brokerage & Hedge Fund Lawsuits Prime Brokerage Prime Broker List | List of Prime Brokers PrimeBrokerageGuide.

The Prime Brokerage Book Counterparty Risk Management Top 3 Technology Trends for Hedge Funds Adding a Second Prime Broker Prime Brokerage Training | Top Resources Prime Brokerage News Hedge Fund Manager Profiles Precious Metals and Foreign Exchange Services Investment Conferences. statistics and surveys: Prime Brokerage Rankings Asian Prime Broker Growth Prime Brokerage Sales Trend New Prime Brokerage Model Emerging Prime Brokerage Trends Article Prime Broker Survey Results Prime Brokerage & Hedge Fund Administration Prime Brokerage for Small Funds Prime Brokerage Assets PrimeBrokerageGuide. facts. Events & Seminars Prime Brokerage Conference Hedge Fund Business Consulting Risk Management Advisory Services Prime Brokerage Trends Below please find all of the PrimeBrokerageGuide.org 117 .com PrimebrokerageAssociation.com articles on industry trends.

com | Family Offices  http://HedgFundsCareer.The Prime Brokerage Book Additional Websites & Resources  http://PrimeBrokerageAssociation.com | Prime Brokerage Guide  http://PrimeBrokerageBook.com PrimebrokerageAssociation.com | Career Guidance  http://PrivateEquityBlogger.com | Prime Brokerage Book  Http://HedgeFundCertification.com | Private Equity PrimeBrokerageGuide.org 118 .com | Certification & Training  http://FamilyOfficesGroup.org | Networking  http://PrimeBrokerageGuide.

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