Evaluating and Selecting a Custodian for Long/Short Investment Funds
Finadium
March 2015
With foundational changes instituted since 2008, the imperative that drove investors to demand greater transparency from their fund managers also prompted custodians and prime brokers to alter their service offerings for long/short funds. Long/short funds now have a variety of custody and leverage service models to choose from including Prime Custody, Enhanced Custody and other prime brokerage/custody hybrids.
This report is a discussion of important points for long/short funds to consider in evaluating the success of their custodial relationships and in selecting a new custodian. We focus on reporting, operational considerations and the cost of leverage as three main criteria for building a successful Service Level Agreement. The report should assist long/short fund managers in partnering with custodians who are focused on and knowledgeable about the long/short fund business and who offer a collaborative approach with their clients. It may also provide insight into the cost pressures faced by service providers.
This report is included in the Finadium Executive Briefing series, providing briefings and analysis to the asset owner and asset manager community.
This report is 15 pages with 2 exhibits.
TABLE OF CONTENTS
■ Executive Summary
■ Why Long/Short Funds Need a Custodian
– A Proliferation of Long/Short Funds
■ Operational Challenges for Long/Short Funds
– Regulatory Reporting and Tax Support
■ Action Items
– Considerations for Managers
– Service Level Agreements and Key Performance Indicators
■ About the Author
■ About Finadium