Fri, Sep 4, 2015
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Industry Updates

BNY Mellon: Custodian banks will ‘fill the void’ in delivering prime custody to hedge funds

Wednesday, October 05, 2011
Opalesque Industry Update - Emerging models in U.S. and Europe are leading hedge funds into new relationships with prime brokers and custodian banks to safeguard assets

In a new opinion piece, BNY Mellon CEO of Alternative and Broker-Dealer Services Brian Ruane argues that recent industry and economic events will see custody banks continue to play a larger role providing services to hedge funds that previously were the sole domain of prime brokers.

The paper, ‘Filling the Void: Transparency and the Rise of Custodian Banks,’ was presented to more than 150 client and industry attendees at recent events in Dublin and London. In it, Ruane writes that due to stricter regulations following the credit crisis – from Dodd-Frank to the AIFM Directive – alternative fund managers are being compelled to reevaluate the right balance between counterparty exposure and a higher degree of safety. Ruane says this is creating distinct operating models for hedge funds in the U.S. and Europe.

Following the crash in 2008, U.S.-based hedge funds sought out custodians to safe-keep and service their unencumbered cash and securities. Through a custodian bank, hedge funds had the assurance not only that their un-invested cash balances were 100% FDIC insured through 2012, but also that securities would be kept off the custodian’s balance sheet and assets couldn’t be rehypothecated. Services traditionally reserved for prime brokers, such as clearing, cash and collateral management, became components of a service partnership between primes and custodians.

The second model is the evolving European interpretation of prime custody. In Europe, hedge funds primarily use custodian banks to provide collateral management services on initial and variation margin. But European-based hedge funds are increasingly showing interest in custody services for their unencumbered assets as well. Driven by the need for greater asset protection and control, hedge funds in Europe are pushing prime brokers toward service models similar to those found in the U.S.

“The universe of companies providing key services to hedge funds has shifted dramatically. Hedge funds have gained a new appreciation for counterparty risk and financial strength and started to look at another group of service providers - custodian banks,” said Ruane. “Alternative investment managers in the U.S. and Europe, as well as the more institutionally focused managers in Asia, are looking to custody banks as financial intermediaries who can deliver a seamless offering.”

Ruane says the two models are evolving to meet the demand for asset protection through improved transparency. In the U.S., several prime brokers have created partnerships with custodians. These partnerships enable prime brokers to maintain their current relationship with their hedge funds, while offering the fund the ability to hold assets with a third-party custodian. Interest is expanding to European shores as well.

Click here to view or download the paper.

(press release)


BNY Mellon Alternative Investment Services (AIS), a leading fund administrator of alternative assets including single manager hedge funds, funds of hedge funds and private equity, has more than $450 billion of assets under administration and custody and an extensive global presence. In addition to administration and custody services, BNY Mellon offers cash management, foreign exchange, collateral management, corporate trust, and wealth management to the alternative investment industry.

BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, offering superior investment management and investment services through a worldwide client-focused team. It has $26.3 trillion in assets under custody and administration and $1.3 trillion in assets under management, services $11.8 trillion in outstanding debt and processes global payments averaging $1.7 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK).

BG

What do you think?

   Use "anonymous" as my name    |   Alert me via email on new comments   |   
Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing


  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Opalesque Exclusive: New Detroit-based CTA seeks to take advantage of coming volatility[more]

    Benedicte Gravrand, Opalesque Geneva for New Managers: An emerging manager has just set up his one-man shop in the city of Detroit. Synchronicity Futures,

  2. Cliff Asness attracts $360 million as liquid alternative funds hold up[more]

    From Bloomberg.com: As U.S. stocks suffered their worst month in more than three years in August, Clifford Asness’s managed futures fund was able to profit. Investors are taking notice. The $9.12 billion AQR Managed Futures Strategy Fund pulled in an estimated $360 million in net subscriptions last

  3. Opalesque Exclusive: When the SEC calls, fund managers need to get out of their own way[more]

    Bailey McCann, Opalesque New York: New pressure is hitting alternative investment funds from all angles. So far this month both hedge fund and private equity players have seen enforcement actions, and subsequent fines over fees, disclosures, and misleading statements. Citi one of the biggest

  4. Performance - Einhorn and Loeb's hedge funds both decline 5% in August, Some target-date funds miss in the market turmoil[more]

    Einhorn and Loeb's hedge funds both decline 5% in August From Reuters.com: Hedge fund billionaires David Einhorn and Daniel Loeb saw their main funds lose roughly 5 percent in August during a dramatic market sell off, two people familiar with their returns said on Monday. Einhorn's

  5. Fortress hedge fund manager David Dredge says markets trouble on the way[more]

    From AFR.com: David Dredge of global hedge fund Fortress has built a career studying, predicting and protecting against the world's major financial crises. The recent convulsions in global sharemarkets are "just the beginning" of a painful adjustment as money drains from the emerging market economie

 

banner