Hedge Fund Question of the Week – Winter Edition – No. 9

By Poseidon Retsinas founder of HedgeLegal

Why Are There So Many Prime Brokers?

Answer: One size doesn’t fit all.

Most people probably think there are only a handful of prime brokers, maybe a dozen.  But there are quite a few more, perhaps as many as a few dozen.

As an initial matter, “prime broker” is a loaded term.  It covers firms offering many different types of products and services.  Some PBs may operate in the equity space, but not in the fixed income or derivatives space for instance.  Other PBs are regional players having developed expertise in local market practices and regulatory environments.  

In addition, PBs vary in size to service clients of different sizes and needs.  Bulge-bracket PBs offer a full suite of services across many products and geographies (generally serving clients with at least 25M in AUM).  A second tier of PBs offer a varying suite of services for small to medium sized managers.  

Then there are mini or introducing primes who use the balance sheet of larger PBs, but are the storefront for smaller clients (aggregating their balances to face the PB).  Finally, discount brokerages service the smallest clients – low touch on services but cost-efficient.