The PB Squeeze

The PB Squeeze

HFM Week’s story ‘European managers feeling the PB squeeze’ highlighted that ‘nearly half of European hedge fund managers have faced prime broker re-pricing over the past 18 months’.  A  prime broker is one of the most important relationships a fund manager has—aside from the all-important cap-intro services, primes help strengthen their clients’ ideas and strategies by providing access to special securities, new geographies and proprietary research.  The primes need to shore-up their balance sheet to continue offering these services, and in doing so, are levying higher fees on their clients or are simply asking them to leave.

As a fund manager, you need to be prepared for change, whether it comes in the form of increased fees or, adding or severing a relationship with a prime for any number of reasons. This is where the multi-prime model comes into play.  The model is not new, but implementing it can come with operational hurdles and time delays if you do not have the right infrastructure in place to support change.  The right infrastructure should come in the form of real-time capabilities that span the most critical aspects of the front-office while automating the flow of portfolio data across your prime and executing brokers, and fund administrators.  This includes consuming data from any number of counterparties and market-data providers, reconciling trades and positions daily, and deriving end-of-day statistics such as commission allocations so the business can quantify a return on investment by counterparty.  Your data should be organized in a secure repository, and continuously cleansed and updated to make sure the data is accurate.

This keeps the business in sync with your partners, and as new relationships are added, provides your primes with access to clean portfolio data so they can begin servicing your capital introduction and securities lending needs. It also helps to make sure that your investment team has an accurate, complete picture of the fund’s positions, performance, risks and NAV at all times so the business is well equipped to put more money to work and launch new products regardless of market conditions or change to your primes.

You can access the HFMWeek article here and learn more about our broker-agnostic hedge fund platform here.