Prime brokers and hedge funds not so cosy these days

The financial crisis of 2008 has changed forever the relationship between hedge funds and prime brokers. A prime broker may best be viewed as a bridge between hedge funds and their investors on the one side, and institutional investors on the other side who may be lenders of stocks or funds. More important, at the hedge fund end, we see a symbiotic relationship with the prime broker as the source for custodial services, funding requirement, leveraging transactions and consultation on regulations. In return the hedge funds generate lucrative commissions for the prime broker. The so far cosy relationship between the…