Hedgeweek Comment: Hedge funds turn critical eye on prime brokers

As market participants such as hedge funds examine the ongoing global financial uncertainty, there are bound to be many casualties. First up are prime brokers, many of which were set up by investment banks to cash in on the boom when times were better.

But now the writing is on the wall. A recent survey conducted by FINalternatives suggests that one in three hedge funds are not satisfied with their prime brokers and would consider a change (or have already changed) because they are 'poor performers'.

According to the latest FINalternatives prime brokerage survey, which polled around 120 hedge fund and CTA managers about key aspects of their relationships with prime brokers including personal service, cost and value, expertise, capital introduction capabilities and electronic execution, as much as 38 per cent of fund managers regard their prime broker's capital introduction service as 'poor' or non-existent.

Today's volatile environment has provided many hedge funds with additional reason to rethink their core service providers and the impact they have on investors, FINAlternatives says. Forward-thinking prime brokers believe they must adapt to the new era by undertaking roles traditionally provided by other financial providers such as administrators and custodians.

Many in the industry see this trend increasing in the future as fund managers seek a one-stop shop from which they can receive a wide array of alternative fund services on a consolidated basis. The new prime broker - or overall fund service provider, if you will - must provide easy and consolidated access to a full range of top-tier specialist services.

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