What is a Prime Broker?
Prime brokerage is the generic name for a bundled package of services offered by investment banks to hedge funds. The business advantage to a hedge fund of using a prime broker is that the prime broker provides a centralised securities clearing facility for the hedge fund, and the hedge fund’s collateral requirements are netted across all deals handled by the prime broker. The prime broker benefits by earning fees (“spreads”) on financing the client’s long and short cash and security positions, and by charging, in some cases, fees for clearing and/or other services.
The following core services are typically bundled into the prime brokerage package:
- Global Custody (including clearing, custody, and asset servicing)
- Securities Lending
- Financing (to facilitate leverage of client assets)
- Customised Technology (provide hedge fund managers with portfolio reporting needed to effectively manage money)
- Operational Support (prime brokers act as a hedge fund’s primary operations contact with all other broker dealers)
- Additional “value-added” services, which may include some or all of the following:
- Capital Introduction – A process whereby the prime broker attempts to introduce its hedge fund clients to qualified hedge fund investors who have an interest in exploring new opportunities to make hedge fund investments.
- Office Space Leasing and Servicing – Certain prime brokers lease commercial property, and then sublease blocks of space to hedge fund tenants. These prime brokers typically provide a suite of on-site services for clients who utilize their space.
- Risk Management Advisory Services – The provision of risk analytic technology, sometimes supplemented by consulting by senior risk professionals.
- Consulting Services – A range of consulting / advisory services, typically provided to “start-up” hedge funds, and focused on issues associated with regulatory establishment requirements in the jurisdiction where the hedge fund manager will be resident, as well as in the jurisdiction(s) where the fund itself will be domiciled.
If I work in Prime Broking what will I be doing?
Your job will be mutli-tasking, every day you will probably be doing something different.
You will be working very closely with money managers arranging stock loan services, portfolio reporting, consolidated cash management and other services on the demand of fund managers.
Your job is to free the money manager from the more time consuming and expensive aspects of running a fund. You will be maintaining relationships with multiple brokerage houses and dealing with many different people for IPO allocations, research, best execution, conference access and other products.
You will make money for the institution not through charges to fund managers but through spreads on financing (including stock loan), trading commissions and fees for the settlement of transactions done away from the prime broker.
As you will be taking on the risk of a fund manager defaulting on their loan you may also get involved in complex VAR (Value-at-Risk) risk management models. This is a series of what-if scenarios that identify the potential gains or losses for each position due to adverse market events.
How do I get a graduate scheme / internship / entry level job or career in Prime Broking?
Obtaining a graduate scheme, internship or entry level role in venture capital can be very challenging and competitive – though very achievable by getting your application, CV, interview and general approach right. You can guarantee that ninety percent of applicants for venture capital roles will not know how to apply, so getting your application in the top ten percent makes things a lot more achievable.
Approaching the company in the right way will make all the difference. Combining the right approach with a strong interview (and in some cases assessment centre) writ a strong focused tailored CV will go a long way. Make sure you have gone through the free videos on this sight by entering your name and email address in the top right of this screen underneath the video. Once you have filled this in you will have instant access to everything you need to secure your career in venture capital.
