Balance Sheet Optimization Strategies (Self-Funding) for Hedge Funds and Other Alternative Asset Managers

November 2015

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This Executive Briefing report focuses on balance sheet optimization strategies for hedge funds. Hedge funds and other alternative asset managers have been hearing about balance sheet optimization, also called self-funding or becoming an efficient counterparty, with some frequency. What does this mean exactly however, and what should hedge funds and other alternative asset managers do to execute a practical plan? This report details multiple strategies to assist alternative asset managers with making the transition towards self-funding their own portfolios.

Banks have less balance sheet than ever available for their hedge fund and other alternative asset manager clients; this is news that investors have been receiving for years now. In a best case scenario, investors are having tough conversations with banks about fees and portfolio management, but with access to balance sheet remaining intact. In a worst case, balance sheet management has led to “tail exercises” in which clients are shown the door. Going forward, access to balance sheet will be a privilege reserved for important clients or at a steep fee.

This report presents strategies for balance sheet optimization relevant to US and European alternative asset managers trading securities on listed and OTC markets. We focus on available investment products, technologies and methodologies, and discuss the inherent conflicts in business organization and strategy that moving towards self-funding represents. This report is useful reading for financing managers, CFOs, COOs and portfolio managers at hedge funds and other alternative asset managers, as well as consultants and service providers looking to support a new facet of market activity.

This report is part of the Finadium Executive Briefing series, providing briefings and analysis to the financial markets industry.

This report is 16 pages with 4 exhibits.

■ Executive Summary

■ The Rationale for Self-Funding
– What Does Optimization Mean?

■ The Strategies

■ Prime Brokers and Technology Solutions

■ About the Author

■ About Finadium


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