The credit crisis has created additional demands on hedge funds that are translating into greater requirements for prime brokers. Safety of assets has increased in importance, driving improved risk and collateral management processes at hedge funds.
Hedge fund investors are calling for a greater level of transparency into the holdings of the funds, with some hedge funds looking to segregate their assets. Prime brokers are being asked to address challenges such as increased transparency, growing customer demands, and new regulatory restrictions. Prime brokerage middle-office services are the next battleground of differentiation, as prime brokers should modify their platforms to meet new hedge fund requirements.
In response to new demands, prime brokers should change their service-delivery model while considering a more cost-effective operational infrastructure. Efficient yet service-friendly operations will enable early adopters to lead the pack in recovering margins and preserving market share gained during the crisis.