Finadium Research Report

Hedge Funds and the Future of Equity Finance

June 2007

Finadium has completed a timely survey of hedge funds and long only managers with alternative asset strategies on their views of margin and securities lending. We asked users what they thought of financing tools, how much they used them, how they felt they were priced and how they thought markets would evolve. These managers hold over US$87 billion in alternative asset strategies and over US$1.5 trillion AUM in total.

The responses of managers were enlightening, not only for articulating their approaches to the bottom line but also for showing the depth of their prime brokerage relationships and forecasting competition in equity finance in the years ahead (see Exhibit 1).

According to Josh Galper, Managing Principal of Finadium and author of the report, “traditionally, financing tools including margin, swaps, and securities lending have enabled hedge funds to stand out compared to traditional long-only managers. As traditional managers enter the equity finance market with 130/30 and related strategies, hedge funds will face tougher competition for resources. For providers of equity finance, the growth of the industry is bringing in a range of new competitors looking to service hedge funds, 130/30 and other alternative asset managers.”

This report is 33 pages with 14 Exhibits.

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■ Executive Summary
■ The Age of Leverage
– Methodology
■ The Basics of Equity Finance
– Margin
– Total Return Swaps and IPOs
– Securities Lending
■ The Present: Margin and Other Leverage
– Swaps and Securitizations
■ The Present: Securities Lending
– Pricing and Availability
– Technology and Portfolio Management
– Long Lending
■ The Future: What Hedge Funds and 130/30 Managers Think Will
Happen in Equity Finance
– The Future of Margin
– The Future of Securities Lending
■ The Prime Relationship and Major Trends to Watch
– Portfolio Margining, Enhanced Leverage and Swaps
– Rise of the Machines
■ Competition and Capacity: 130/30 and 120/20 Strategies
■ About the Author
■ About Finadium


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