$100M HFs Snubbed By Institutional Investors, Prime Brokers

Jun 20 2008 | 2:00am ET

So what does $100 million in initial assets get a rookie hedge fund manager these days? Not much, according to Dick Del Bello, senior partner at Conifer Securities.

Del Bello, who previously headed UBS’ prime brokerage for the Americas, says the hedge fund industry is becoming more institutionalized and, as a result, investors are demanding sound infrastructure and transparency be in place before they commit to managers. And in light of the Bear Stearns fiasco, institutions are questioning the safety of their assets, and are dictating to their managers where they want their assets kept.

“If you were an institution in a hedge fund that was custodied at Bear, you would rightfully be very concerned,” said Del Bello. “That same thought process is going on today with Lehman Brothers just because they’re in the news.”

The institutionalization of hedge funds have forced investment banks’ prime brokerage units to focus on servicing hedge funds that manage a minimum if $1 billion, leaving less well-heeled funds to fend for themselves.

So how much in initial assets does a fund need to attract interest from investors and prime brokers? According to Del Bello, $500 million will get you noticed by the banks, but even at that level, some institutions won’t invest in your firm unless you have at least a one-year track record.

“Hedge funds can’t get enough access unless they’re generating enough revenue for the top-tier investment banks,” said Del Bello, who added that he recently met with a $1 billion hedge fund that wanted to add a second prime broker, but couldn’t generate enough interest because “they were a plain vanilla long/short fund that’s a lot more long than short right now and didn’t fit the bill.”

The void left by the big banks has created opportunities for smaller primes, or mini-primes, to step in and take over the “heavy lifting” of servicing these hedge funds in terms of reconciliation, documentation and even office space setup. “It is in this space that we see great growth opportunities,” said Del Bello.


In Depth

Part II: Roubini Talks Risk, Recovery And The Threat Of A Triple Dip Recession

Oct 21 2014 | 12:41pm ET

In the second half of our interview with Nouriel Roubini, FINalternatives editor...

Lifestyle

Balyasny Pays Over $6M For Lakefront House

Oct 22 2014 | 10:29am ET

A venture headed by hedge fund manager Dmitry Balyasny just paid $6.2 million for...

Guest Contributor

Hedge Funds Weather A Data Management Perfect Storm

Oct 22 2014 | 12:28pm ET

From a regulatory standpoint, nearly every development since the crisis has placed...

 

Videos

Editor's Note

    Guidelines for Guest Articles

    Oct 22 2014 | 9:46am ET

    We are always looking for guest articles from hedge fund managers and buy-side firms.

    If you are interested in submitting a contributed piece for possible publication on FINalternatives, please take a look at the specs. Read more…

 

Futures Magazine

October 2014 Cover

Deeply flawed risk benchmark

Most traders agree that proper risk management is the key to successful trading. However, many traders depend on the deeply flawed measure of standard deviation as a benchmark of risk. Here we put it ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.