Liquid Alternatives, Leverage and Prime Brokers
Finadium
August 2015
The future for liquid alternative mutual funds and UCITS funds looks bright, but structural problems in accessing leverage and service providers may indicate a problem with the sustainability of this business model.
In this report, Finadium releases new survey data on leverage patterns and service provider usage by large asset managers offering liquid alternative funds. Our analysis across borrowers and lenders of margin and securities loans show that liquid alternatives relying on physical financing may need to develop alternative mechanisms to remain viable. Fortunately, large asset managers have options at their disposal, but these may require new ways of thinking about the value and operations of securities finance that go against long-held beliefs about the role of leverage in the markets.
The liquid alternatives industry may grow to US$2 trillion as some analysts predict, but there are growing pains that should be acknowledged. These issues will affect both fees and the portfolio models used to generate investor returns.
This report is part of the Finadium Executive Briefing series, providing briefings and analysis to the financial markets industry.
This report is 14 pages with 9 exhibits.
TABLE OF CONTENTS
■ Executive Summary
■ How Large Asset Managers Look at Liquid Alternatives
– Popularity of Fund Structures at Major Fund Complexes
■ Leverage Use
■ Views on Service Providers
■ How Sustainable is the Liquid Alternative Financing
and Service Model?
■ About the Author
■ About Finadium