Hedge funds who are in their development phase are looking to explore possible investment brokers for one main reason: the minimum AuM threshold has been increased by certain major prime broker firms. This puts their services out of reach for the up and coming start-ups who just don’t have the assets to compete with some of the major hedge funds.
Major investment broker firms have put their services out of reach, and major investment banks are also taking a step back in terms of support. They are of the opinion that providing comprehensive brokerage solutions to smaller firms is just becoming too expensive because of the increasing costs of new capital and liquidity requirements.
What are hedge funds looking for in an investment broker?
The young start-ups are looking for investment brokers who are able to pass through cost structures in leverage and execution as well as clearing by major investments banks. This is something that smaller managers won’t be able to accomplish in a stand-alone environment. They are therefore in need of investment brokers who have prime broker and clearing relationships already in place.
