Thursday, June 26, 2008

Prime Brokerage

Prime Brokerage is the generic name for a bundled package of services offered by investment banks to hedge funds. The business advantage to a hedge fund for using a Prime Broker (PB) is that a PB provides a centralized securities clearing facility for the hedge fund. The result of having a centralized facility is it allows all the hedge fund's expenses and transactions to be more easily tracked. The Prime Broker benefits by earning fees ("spreads") on financing the client's long and short cash and security positions. The PB also charges, in many cases, fees for clearing and/or other services.
The following core services are typically bundled into the Prime Brokerage package:
• Global custody (including clearing, custody, and asset servicing)
• Securities lending – An exchange of stock or securities for some sort of collateral, usually cash equal or greater to the cost of the amount being borrowed.
• Financing - to facilitate leverage of client assets
• Customized Technology - provides hedge fund managers with portfolio reporting needed to effectively manage money
• Operational Support -prime brokers act as a hedge fund's primary operations contact with all other broker dealers.

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