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Hedge fund assets available for prime custody jump 40% in two years, says BNY Mellon

Wednesday, September 12, 2012

Opalesque Industry Update – BNY Mellon, the global leader in investment management and investment services, reported today that hedge fund assets available for prime custody services now stand at an estimated $684 billion, a 40% increase since 2010. The increase reflects both growth in overall hedge fund assets under management (AUM) as well as lower levels of borrowing from prime brokers.

Roughly half of all hedge funds with more than $1 billion in AUM are now thought to have a prime custody agreement in place, up from 15% in 2008 as funds increasingly seek to mitigate counterparty risk.

‘Prime custody’ refers to the tailored servicing of unencumbered assets within alternative investment portfolios, performed by both prime brokers and custodians to provide greater transparency and risk mitigation.

Produced in conjunction with research and consulting firm Finadium LLC, the new report, “Prime Custody Comes into the Spotlight,” outlines prime custody’s growing importance to hedge funds and how global custodians are supporting this market. The paper also analyzes the structural changes that are fueling growth, including an increase in fully paid/unencumbered assets – such as investments in financial products which themselves contain built-in leverage – and a heightened awareness among institutional investors of potential counterparty risk.

“Hedge funds are putting far more emphasis on how they manage custody of their assets and increasingly looking to adopt best practices to ensure their counterparty risk profiles are optimized and meet investor requirements,” said Marina Lewin, managing director at BNY Mellon’s Alternative Investment Services business. “BNY Mellon works in partnership with its extensive network of prime brokers, so clients maintain their current prime broker relationship but have the added benefit of holding their assets with an independent third-party custodian.

“This new paper highlights the significant growth in the prime custody market in recent years, and we expect the trend to continue,” Lewin added.

BNY Mellon’s prime custody platform enables hedge funds to move, manage and safekeep assets with maximum transparency, combining elements of custody with collateral management and liquidity services. Assets are fully segregated and held outside the custodian’s balance sheet, helping to address investor concerns regarding counterparty risk. BNY Mellon has alternative assets under administration and custody of more than $525 billion, including over $155 billion of prime custody assets.

Copies of the paper are available on request (

(press release)

Finadium is a research and consulting firm focused on financial markets.

BNY Mellon is a leading administrator of alternative assets, including single manager hedge funds, funds of hedge funds, and private equity, with more than $525 billion of alternative assets under administration and custody and an extensive global presence.


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