Basel III forces hedge funds to reform PB partnerships
21 January 2016 London
Image: Shutterstock
The majority of hedge fund managers have revised their relationships with prime brokers in order to better tackle new regulatory challenges, according to an Alternative Investment Management Association (AIMA) and S3 Partners joint survey.
Basel III has already caused 75 percent of the survey’s respondents to rethink how they do business with their prime brokers and more than 67 percent have cut the levels of cash kept on their brokers’ balance sheets.
The survey also found that most alternative asset managers either maintained or increased the number of prime brokers over the last two years—with four being the average.
It was further revealed that only 20 percent of managers have a clear understanding of how their prime brokers calculate their worth in terms of the revenue they provide relative to balance sheet impact.
Fewer still have the data necessary to calculate this themselves, found the survey.
More worryingly for investors, the report claimed that a lack of consensus around the meaning of a number of prime brokerage terms existed among fund managers.
Terms such as ‘reconciliation’, ‘collateral management’ and ‘collateral optimisation’ were all cited as confusing to some managers.
AIMA and S3 say this highlights the need for a common language to define key terms.
Following these results, AIMA and S3 recommended that all fund managers should make sure they have the right data, including unbiased data sources; use a different set of analytic tools and calculations; and make sure that they and their financing counterparties are speaking a common language.
The survey was comprised of 78 alternative asset managers, ranging from small single-strategy managers to large global multi-strategy managers.
Basel III has already caused 75 percent of the survey’s respondents to rethink how they do business with their prime brokers and more than 67 percent have cut the levels of cash kept on their brokers’ balance sheets.
The survey also found that most alternative asset managers either maintained or increased the number of prime brokers over the last two years—with four being the average.
It was further revealed that only 20 percent of managers have a clear understanding of how their prime brokers calculate their worth in terms of the revenue they provide relative to balance sheet impact.
Fewer still have the data necessary to calculate this themselves, found the survey.
More worryingly for investors, the report claimed that a lack of consensus around the meaning of a number of prime brokerage terms existed among fund managers.
Terms such as ‘reconciliation’, ‘collateral management’ and ‘collateral optimisation’ were all cited as confusing to some managers.
AIMA and S3 say this highlights the need for a common language to define key terms.
Following these results, AIMA and S3 recommended that all fund managers should make sure they have the right data, including unbiased data sources; use a different set of analytic tools and calculations; and make sure that they and their financing counterparties are speaking a common language.
The survey was comprised of 78 alternative asset managers, ranging from small single-strategy managers to large global multi-strategy managers.
NO FEE, NO RISK
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
100% ON RETURNS If you invest in only one securities finance news source this year, make sure it is your free subscription to Securities Finance Times
