Basel III Raises Prime Brokerage Costs for Hedge Fund Managers

Prime brokerage relationships are a critical source of financing and other services for hedge fund managers. See “Factors to Be Considered by a Hedge Fund Manager When Selecting a Prime Broker” (Dec. 4, 2014). However, as revealed by a recent survey conducted by the Alternative Investment Management Association (AIMA) and data and analytics firm S3 Partners (S3), regulatory requirements – particularly those around capital and leverage – are causing prime brokers to raise financing fees and to be more selective in choosing clients. As a result, hedge fund managers may have to think more strategically about the value they offer to prime brokers; opening an account and depositing assets may no longer be sufficient. In their survey of 78 asset managers, AIMA and S3 explored the effect of Basel III and other new regulations on prime brokerage relationships with hedge fund managers. This article captures their key findings. See also “Barclays Predicts Increased Financing Costs for Hedge Funds Due to Regulatory Changes Affecting Prime Broker Financing” (Oct. 18, 2012).

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