Finadium Research Report

Scaling the 130/30 Opportunity for Asset Managers,
Brokers and Custodians

February 2008

130/30 strategies have had a disruptive effect on the securities marketplace, and not just by creating a potentially new asset class for investment. In asset management, 130/30 is speeding up the already blurring distinctions between traditional long-only asset managers and long/short hedge funds. In custody and brokerage, financing the long and short pieces of 130/30 offers $1.26 billion in potential new revenues but also creates direct competition between formerly compatible service providers.

For all the hype of 130/30, institutional and retail investors are just beginning to test the waters for allocating funds. We found that 14% of institutional investors said that they had already invested in 130/30. Asset managers, brokers and custodians have already responded to the major obstacle of educating the board; only time will resolve the other major consideration: can 130/30 strategies generate additional alpha for their associated costs.

130/30 has opened up serious questions in the division of business between brokers and custodians. While there have been disagreements between brokers and custodians looking to partner, the opportunity is too new to have generated any long-term damage. This issue will become more pronounced as 130/30 grows in importance and as client relationships are deepened through the provision of new services.


In this report we utilize data from four complementary sources: Finadium’s recent survey of institutional investors, conversations with asset manager and brokers, publicly available data on asset manager 130/30 holdings, and industry pricing data that we collect on a regular basis. These data sources present a picture of the opportunities and challenges of scaling 130/30 strategies.

This report is 29 pages with 16 exhibits.

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? Executive Summary
? The Next Frontier for 130/30 Asset Servicing
– Methodology
? Where the Money Is: Sizing Revenues from 130/30 Financing
? Institutional Interest in the 130/30 Market
– Obstacles to institutional investment
? Asset Managers, Fees and the Hedge Fund Defensive Maneuver
? Custodians versus Prime Brokers in 130/30 Servicing
? Institutional opinions on custody and prime brokerage for 130/30 assets
? Servicing 1940 Act Investment Companies with 130/30 Funds
? Eroding Boundaries in Asset Management, Brokerage and Custody
– How far can brokers and custodians go?
? About the Author
? About Finadium


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