Managing Multi-Prime Broker Relationships to Drive Operational Alpha

By May 5, 2021 No Comments
Managing multi-prime broker relationships to drive Operational alpha

In the hedge fund ecosystem, prime brokers are considered an important element due to the key role they play in global custody, securities lending, financial leverage, and other value-added services. Among these services, the majority of revenue for prime brokers comes from spreads on financing, trading commissions and transaction settlement fees.

From a prime broker’s perspective, hedge funds that are predominantly trading in the repo, futures and foreign exchange markets bring in significantly higher revenue than the ones trading in fixed income securities. So, although it is commonly believed by asset managers that they are paying relatively small amounts to their prime brokers, the impact on the NAV becomes substantial when we consider those with assets under management of over $500 million – making it crucial to manage prime broker relationships in a more effective manner.

With cost efficiency top of mind, it is beneficial to have a tool that can assist managers with the daily/monthly monitoring of fees, comparative analysis of economic relationships with multiple brokers and ROA analysis. Using these insights, hedge funds can identify and leverage different opportunities to generate operational alpha by reviewing the costs associated with their prime broker relationships. For instance, when borrowing a security, the broker with whom the position is currently held may charge 0.50% annually, whereas another broker may only charge 0.40% for the same security. In these scenarios, a hedge fund can achieve a potential uplift in profits by moving the position to the second broker.

IVP Treasury’s Wallet Share module is one such application that has helped hedge fund managers compare their share of wallet with each of their prime brokers in a holistic way. On a broad level, the tool provides the following functionalities to its end users:

  • Head-to-head comparison for fees/expenses incurred by each portfolio across different prime brokers as well as different fee buckets such as financing, clearing, execution, etc.
  • Analytical dashboards that provide a summary for each counterparty in terms of cash balances, exposure, fees, etc.
  • Customizable dashboards according to client-specific reporting requirements.
  • A transparent broker voting facility based on various parameters.
  • Ability to view or download data at the individual financial account level as well as the executing broker level for further analysis.

Through these functionalities, users are empowered to take better control of their underlying data to make informed decisions accordingly. To learn more about IVP Treasury’s Wallet Share module, contact

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