What Prime Brokers need to do if they are to attract more mandates

  • Insights

Hedge funds are subjecting their prime brokers to ever higher levels of scrutiny. Paul Kelly, CEO of Linear Investments looks at what prime brokers need to do if they are to attract more mandates moving forward.

Commitment and safety are paramount

There are concerns in some hedge fund circles that tier one banks could continue to call time on their prime brokerage units as well, which is prompting managers to conduct more robust due diligence on their prime broker relationships, so as to assess whether they are truly committed to offering prime services for the long term

The recent turmoil in the banking system – resulting in the failure of three technology focused banks in the US – has resulted in hedge funds ramping up their reviews of prime brokers’ risk management practices. In particular, clients want assurances that their assets are safe in the event of a provider entering into insolvency. This can be enabled by managers if they have CASS agreements in place with prime brokers and custodians alike.

Asset class access and service cannot be compromised on

Amid the challenging return environment, hedge funds are looking to diversify their income streams, by broadening their exposure to new asset classes. As a result, prospective clients are increasingly insisting that prime brokers offer them exposure to a wider gamut of asset classes encompassing equities, fixed income, foreign exchange and derivatives.

Costs are a recurrent challenge facing the hedge fund industry, especially SMEs (small to medium sized) – who tend to be disproportionately impacted by the mounting regulations and growing operational requirements being imposed on their businesses. With hedge funds devoting more internal resources to dealing with these issues, returns and fundraising are at risk of being compromised.

In order to thrive, firms need to work with providers who are full-service, offering them cash and synthetic instruments, Global Execution Services (24hr desk), competitive Margin Financing, Portfolio Swap, Stock Loan, Custody and Settlement.

By having access to providers whose service offering is entirely holistic in nature, managers can net cost synergies and streamline operations, allowing them to concentrate their time and effort on winning mandates and delivering excellent performance.

Good practice will ultimately reap the rewards

If prime brokers are to attract new mandates, they must demonstrate to prospects that they are committed to the business and well risk managed, in addition to offering an extensive range of services to clients, together with broad asset class coverage.

Linear Investments provide access to global markets and a broad range of assets classes – Equities, ETF’s, Fixed Income, Futures, Options and FX. Investments offer multiple execution facilities such as Electronic Execution, Access to trade Algorithms or care worked orders.

Post Written by:

Paul Kelly


Paul is the CEO and Chairman at Linear Investments Ltd. Linear is a specialist award winning prime broker and discretionary fund manager based in London, Hamburg and Dubai. Linear’s integrated platform solution brings together all the skills, expertise, and solutions you require in one place.

Linear Investments LTD is authorised and regulated by the Financial Conduct Authority (“FCA”) FRN 537389. Linear is incorporated in England and Wales, registered no: 07330725. The value of investments, and the income from them, can go down as well as up.