Opalesque Industry Update - Basel III reforms have fundamentally changed how asset managers are connected to the financial system, with hedge funds challenged to understand expense, usage and access to the financing power grid, according to a joint survey and report by the Alternative Investment Management Association (AIMA), the global representative body for alternative asset managers, and S3 Partners, a leading financial data, analytics and services firm. Jack Inglis, CEO of AIMA, commented: “There is no doubt that the Basel III banking standards are having a significant impact on hedge funds and other alternative asset managers. Financing costs are rising and the fund manager / prime broker relationship is changing fundamentally. It is our hope that this timely and important report will provide clarity and direction to those who have felt the impact of the recent regulations, and to give context to issues that are being felt across the industry.” Bob Sloan, CEO of S3 Partners, commented: “New bank capital regulations are creating downstream financing challenges and opportunities for asset managers and hedge funds. The survey clearly shows how plugging into the financial power grid is getting more expensive.” Mr Sloan continued: “Managers of all shapes, sizes and strategies now seek to answer the question: How can we maintain access to the grid, while optimizing for the right amount of efficiency? As the survey results show, access to unbiased data, comprehensive Return on Assets/Return on Equity analytics, and a common language are critically important towards determining fairness – as rates, margin, spreads and contracts will be a key determinant for an asset managers’ success.” Rising financing costs The survey of fund managers worldwide found that:
Fund managers responding to the survey said they are having to rethink their prime brokerage relationships due to Basel III.
Defining key terms The survey, titled ‘Accessing the Financial Power Grid: Hedge fund financing challenges under Basel III and beyond’, also highlighted a lack of consensus around the meaning of a number of prime brokerage terms, such as “reconciliation”, “collateral management” and “collateral optimisation”. AIMA and S3 say this highlights the need for a common language to define key terms. Recommendations Hedge fund managers can put themselves in a stronger position to deal with the changing nature of the prime brokerage relationships. To maintain access to the “grid” of financing, manage their overall cost of doing business, and optimise the mutual value of their prime brokerage and counterparty relationships within the new regulatory landscape, hedge funds and other investment managers must increasingly:
The survey is comprised of 78 alternative asset managers with combined assets under management (AUM) of more than $400bn. Respondents ranged from small single-strategy managers (under $100m of AUM) to large global multi-strategy managers (over $10 billion of AUM).
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Industry Updates
Basel III fundamentally changes how asset managers are connected to the financial system
Wednesday, January 20, 2016
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