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This month, Geneva-based due diligence firm Hedge Fund Appraisal is bringing to our attention a review of the prime brokerage industry performed by one of its intern from Villanova University, Kunj Amin. According to the firm’s CEO, Gabriel Kurland, the table provided (see link at bottom of article) is a good due diligence tool for those who would like to assess the counterparty risk in their hedge fund portfolio.

The fall of 2008, its events concerning the global security and equity markets, and their ongoing ramifications have caused considerable change in the way investors now evaluate banks when it come to prime brokerage. If this is not the case, then those investors should be re-evaluating their prime brokerages to see if they truly are capable of keeping their money safe. Ironically, the Pershing Division of the Bank of New York Mellon conducted a survey during the summer of 2008 attempting to assess counterparty risk from the perspective of hedge fund managers. Their results seemed to destroy the notion that counterparty risk is trivial as 50% of respondents viewed counterparty risk to be “extremely important” and 51% actually monitored it on a daily basis. Counterparty risk was even found to be the most important factor when evaluating a prime broker.

The prime brokerage industry has also been shaken up by the exit, entrance, and strengthening of multiple players which has given us a substantially different environment to work in. Firstly, both Lehman B......................

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