Course Director: Jacob Schmidt
The requirements of a successful prime brokerage business are laid out, followed by a look at the risks generated by the business and the systems environment required.
The course examines the nature and key trading strategies of hedge funds and the allocation of margin. The investor's relationship to a hedge funds prime broker is also covered by examining the requirements of a successful prime brokerage business and the key tax and legal issues in both principal ownership and agency ownership structures.
Hedge Funds and the Development of Prime Brokerage
Main hedge fund styles, Opportunistic, Event-driven, Relative value. Measures of performance and developments in investor base. Growth of derivative or hybrid products. Main characteristics and risks associated with hedge funds: market neutrality; credit quality; liquidity; operational hazards.
How does this strategy actually make money? How does it actually work? What are its main risks? Is it really market neutral? A series of detailed case studies.
Why is Prime Brokerage important to Hedge Funds? How exactly do Prime Brokers operations, commercial and legal terms affect Hedge Fund performance and bear upon the Hedge Fund's risks?
What are investors looking for in a Prime Broker? The advent of institutional money to the Prime Brokerage arena and its impact on Hedge Funds' and Prime Brokers' compliance function and operations. Capital introduction described and its risks considered. Proprietary investment in Hedge Funds by Investment banks discussed.
The risks in prime brokerage and how to control them. How Investment Banks look at risk: Corporate credit, Prime Broker risk management. Value at risk explained. Where do a Prime Broker's margin terms come from? Risk theory underlying Prime Brokerage. Prime Brokerage as a dynamic form of securitised credit. The nexus between Risk Management, Legal and Operational Risks. Recent developments. A recent case study of what happens when things go wrong: new, and previously hidden, risks.
Prime Brokerage: Legal and Tax
A: Prime Brokerage, legal relationships and documentation; legal terminology; beneficial ownership
B: Basic building blocks for tax.
Legal Documentation - The Principal Terms and their Importance
Provision of finance; margining and margin requirement; rehypothecation; events of default; close-out; indemnity; force majeure; settlement; consequential loss.
Tax and Legal Implications of Beneficial Ownership
Legal: UK law definition; overseas territories. Tax: Background to tax issues; cross-border issues; access to double taxation treaties; key concepts behind beneficial ownership; practical impact.
Prime Brokerage: The Main Tax Issues
Disposal treatment; exemptions; stamp and transfer duties; agency and reporting issues; manufactured dividends; withholding tax.
Principal vs Agency Long and Short Side Structures
Overview of issues; collateral, settling of short positions, double tax issues, structures on the long side; basic building blocks, prime broker acts as principal, prime broker acts as agent; operational vs. tax. Structures on the short side: basic building blocks, settling of short positions.
Long side; short side; operational versus legal versus tax.