The multi-prime strategy is not a new concept but implementing the strategy does come with operational hurdles if done the wrong the way. Today's regulatory and due diligence environment is pushing funds to go multi-prime at an earlier point in their life cycle. As a fintech company specific to the buy-side, we work with emerging managers with $50 million in assets that have adopted a multi-prime strategy because the advantages outweigh the additional costs that come with that decision. Institutional investors want to understand how you as a fund manager diversify counterparty risk—a risk that is minimized by working with more than one prime broker.

Aside from your investors, business reasons drive fund managers to consider multiple prime brokers. Multiple prime brokerage relationships can strengthen your capital raising efforts and provide your investment team with access to special securities, new geographies and proprietary research to bolster alpha generating ideas. Having more than one prime broker on record also allows for an easier transition if and when you outgrow an existing relationship. In fact, a Preqin study from last year found that 53 of the more than 100 managers polled changed a prime brokerage relationship in the last year due to business growth or access to new services. Once you agree that it makes sense to adopt a multi-prime strategy, the challenge becomes making sure it is done correctly.

Choosing the wrong infrastructure can bring on a new set of operational challenges-legacy technology and point solutions that cover only parts of the investment workflow can bring on administrative issues and discrepancies with trade allocation and reconciliation, and consolidated risk management and reporting. And this process will become even more complicated as your fund grows and invests in new geographies and strategies, and brings on new trading counterparties to support that growth.

The right broker-agnostic infrastruc......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.