Finadium: Leveraged Funds and Prime Brokerage Relationships: Evidence from a New Database

Finadium has created and analyzed a new database of Form ADV filings from the US Securities and Exchange Commission (SEC). The data, compiled from registered funds listing a prime brokerage relationship, shed new light on the size and composition of both the leveraged fund industry and their prime brokerage services providers.

Hedge funds remain the primary users of leverage in global financial markets. According to the SEC, in early 2019 hedge funds had borrowings of over $3 trillion from across prime brokers, reverse repo, and other secured, as well as some unsecured transactions. This is big business for prime brokers and trading firms, who book over $20 billion annually in financing fees and related derivatives trading. It is also the source of increasing attention from hedge funds looking to manage their costs and deliver operational alpha most effectively.

Finadium has created a database of hedge fund filings using the SEC’s Form ADV. The database contains two sections. The first covers descriptive information on funds including name, fund manager and legal domicile. The second maintains fund filings on regulatory assets, number of clients and service providers across prime brokers, custodians and accountants. We built a SQL database with this information and offer Finadium clients the ability to run searches using a GUI on the Finadium website. After cleaning, our report analyzes the relationships of 1,697 management companies with 3,344 individual fund structures, and their prime brokerage providers.

While the extent of relationships between the biggest funds and the largest prime brokers will come as no surprise, other segments of market data show attractive opportunities for prime brokers outside of the top tier. In this report, we analyze the Form ADV data across general trends, the largest funds and a middle tier of $500 million to $2 billion in assets.

The data can also be used to project the impact of future market events: we offer a breakout on how the acquisition of Deutsche Bank’s equity finance business by BNP Paribas is likely to change competitive dynamics.

For regulators and service providers, the data contain useful indicators of where systemic risk could occur, and what types of funds are gravitating to which types of prime brokers.

This Form ADV database is available to Finadium subscribers on our website. Clients can conduct their own searches and analysis, and download the data, using a customizable GUI.

A direct link to the report for Finadium research clients is https://finadium.com/finadium-report-desc/leveraged-funds-and-prime-brokerage-relationships-evidence-from-a-new-database/

For non-subscribers, more information is available here.

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