The Trade: Hedge fund performance forces prime brokers to rethink risk

Performances within the hedge fund industry last year are causing prime brokers to reassess the credit and counterparty risk of financing.

The $180 million loss within Citi’s FX prime brokerage business in December last year spurred a new debate over whether prime brokers are charging a fair price to finance hedge funds making speculative bets.

As prime brokers have sought to capture greater market share of hedge funds and boost returns, the power over balance sheet pricing has shifted greatly to the buyer of their services, and what many see now as inaccurate rates for the risk they are taking on.

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