Availability, Responsiveness Key To Prime Broker Success

April 19, 2001 (PLANSPONSOR.com) - The growing interest in, and availability of, hedge funds in the plan sponsor community has heightened the importance of the prime broker function, and those with responsive, available service personnel rose to the top in Global Custodian's 2001 Prime Brokerage Survey.

PLAN SPONSOR’s 2001 Defined Benefit survey revealed that a staggering 32% of plans with more than $200 million in assets were planning to increase their allocations to hedge funds this year.

An integral component of that expansion is prime brokers, which include the likes of Goldman Sachs, Morgan Stanley, and Bear Stearns and 16 others included in the annual survey.  These financial houses act as turbocharged custodians for hedge funds, providing them with everything from trading to securities lending, according to Plan Sponsor’s sister publication Global Custodian.

Pension Prominence

Prime brokers also interact with pension funds in two other arenas. First, most prime brokers have created what are called ‘capital introduction’ groups, which link investors and hedge funds.

Second, prime brokers provide the reporting on their hedge fund clients that investors – specifically pension funds – require in order to ensure that the hedge funds are in good financial shape and not taking undue risks, or at least not taking unanticipated risks.

The net result is that any survey of prime brokerage capability is, with every passing year, becoming more and more important to plan sponsors.

Survey Says

Not surprisingly, responsiveness and availability of client service personnel was by far the service quality deemed most important by hedge funds, cited by nearly two-thirds (64%) of survey respondents. 

That area was cited more than twice as important as the next highest category, timeliness and accuracy of reporting (31%).  Interestingly enough, availability and responsiveness was specified much more frequently than knowledge and experience of the same personnel.
Other key service elements included:

  • 26% – competitiveness of rates
  • 24% – knowledge and experience of client service personnel
  • 23% – assistance with capital raising
  • 22% – quality of operations personnel
  • 11% – trade processing and settlement procedures
  • 11% – quality of prime broker’s technology
  • 10% – ability to obtain hard-to-borrow securities

The survey, conducted annually since 1994, incorporates the interview findings from more than 813 hedge funds-ranked prime brokers based on:

  • survey scores,
  • comments, and
  • market presence.

Those results were further qualified with input from a select group of industry consultants, and organized by both target market and service category.

The survey ranked excellence in the following service categories:

  • Client service
  • Securities lending
  • Financing
  • Reporting
  • Technology
  • Operations

Additionally, the survey also ranked performance in three specific market segments:

  • under $100 million,
  • between $100 million and $500 million, and
  • over $500 million

Click here to view the results of the survey, along with a comprehensive analysis of 19 key providers.