This Finadium Executive Briefing evaluates both established and new services offered by custodian banks to alternative asset managers. From partnerships with prime brokers to rolling over excess long balances to balance-sheet friendly securities lending solutions, are custodians showing us the future of prime brokerage?
Custody bank services for alternative asset managers have evolved to the point where it now requires new language to describe it. Prime custody once referred to a simple rollover of excess long assets from a prime brokerage account, where the prime broker retained the right to move assets back to cover margin calls. Alternative managers had done business directly with custodians for years, but typically just for the long-only portion of their business; prime brokers were still critical service providers for anything related to leverage.
Today, as prime brokerage balance sheets continue to respond to global and domestic regulation, custodian banks have captured financing-related business with alternative asset managers. A new wave of service provision includes access to securities loans for short selling and the ability to lend excess long positions to generate cash for margin purchases. These business lines overlap with the core services offered by prime brokers.
This Executive Briefing has been written for alternative asset managers, banks and service providers to understand the business models of custodians offering custody and financing services. It may also be useful to banks evaluating the potential for balance sheet savings in their prime brokerage franchises.
This report is part of the Finadium Executive Briefing series, providing briefings and analysis to the financial markets industry.