Here are some key quotes from my latest podcast with Poseidon Retsinas, Founder & CEO of HedgeLegal:

“But what usually happens is being from the buy side, hedge funds receive the documentation from the prime brokers or their ISDA counterparties. And the documentation starts very heavily slanted in favor of those counterparties.”

“The other thing that’s really important is to know the boundaries within which the various prime brokers on the Street are willing to work within. Each of them has their own intricacies and nuances. So the terms that you can get out of one PB may not be the same as another.”

“For managers that are just starting out that were portfolio managers, and they’ve never actually run a hedge fund or been involved in-depth in a document negotiation, all of this seems a little foreign to them. They don’t really know what they should be asking for, why it’s important.”

“So representing just the buy side is important to me because I feel I can fully represent their interests and I’m never caught into a conflict. And my firm is never caught in a conflict situation where we may have been assisting one of the prime brokers on the other end in any way.”

“As hedge funds proliferated in the ’90s and 2000s, the PB model and the PBs became more important, and became a more part of the business of the investment banks. Their services and the products that they offered also increased over time.”

“The baseline starting point of any prime brokerage agreement is that financing is done on an overnight basis, which means in an un-negotiated form, the PB can pull that financing from you at any time.”

“The last element is what are the events of default or the “termination events” against the fund, like when something happens, something goes wrong at the fund – if there’s a payment failure, or if a key person has left the fund, or if there’s a breach of investment guidelines. Do those situations give rise to the right for the prime broker to terminate your relationship?”

“The other impact [from the pandemic] we’ve seen directly in the PB space is with respect to the financing rates and margining offered by prime brokers. So overall, the prime brokers are tightening up a little bit. They’re looking for more margin.”

“With respect to overall, onboarding and negotiating, I expect managers to continue to look at multi-prime and multi-counterparty scenarios. The regulatory and KYC has increasingly become difficult and I believe that will continue. So onboarding remains a pain point and a lengthy process.”