For many people, prime brokers and custodians are one and the same thing. However, this is not true. Custodians are charged with the responsibility of keeping assets safe for clients. On the other hand, brokers are responsible for executing trade ventures for the clients. However, brokers can serve as custodians.
Traditionally, the prime brokers only dealt with securities lending, margin financing, consolidated reporting and clearing, settlement and custody. Currently, they are also responsible for ensuring that hedge funds can gain access to currencies and commodities, fixed-income securities, equities and even derivative products. As much as their are some roles which are distinct when it comes to the professionals, there are some which are shared.
1. Capital introduction
Assets can be utilized in bringing in more income. In such a case, the professionals are supposed to introduce the clients to new capital sources and potential investors. This can be done through asset management companies and private banking. Earning more than you have deposited in the bank can hurt no one, and anyone you trust with your money should be able to make this happen.
When talking about research, it does not only involves solving difficult scientific issues. Research in the financial market will help the clients make smart moves. It is the role of the custodian or prime broker to conduct research which will be beneficial to the client and hand over the research findings and recommendations. In this way, the measures taken will be practical-based. It is rare to go wrong when making decisions based on facts.
Note that the wrong moves when it comes to investing can leave the client broke. Therefore, the professionals need to do their best to make sure that it does not come to this.
3. Fund trustee and administrations services
The professionals might not be in a position to do everything on their own. They have to outsource in such a case. It is good to call in professionals to every task so that things can proceed smoothly. Also, the results will be quality.
Nonetheless, the professional needs to ensure that the services procured are not worthless. Some corrupt ones might do this to extort money from the clients. This is unethical. Every decision made and every coin spend should be towards a worthy cause.
4. Derivative support
The professionals should give the clients a free pass to their derivative desks. Also, clients should get ideas on risk management free of charge. What the professionals should remember is that success of the client is also their success since they are getting their commission too. However, those who think that by helping the client gain more wealth they are doing them a big favor will never raise above the average. By doing this, they are standing in the way of their success.
5. Enhanced leverage
A common aspect amongst the rich in the society is that they have obtained resources through credit. The good thing with having credit lines is that they can be used as leverage. It is upon the prime brokers and custodians to provide the hedge fund clients with credit lines which are stable enough to be used as leverage in substantial courses. It is not an easy task because the risky form of credit requires one to take calculated steps. However, if the cards are played right then the returns will be astonishing.
6. Performance and risk analysis
There are some rich people in the society who have made their wealth through taking calculated risk. However, amateurs can lose all their live savings in a spur of a moment when they take the wrong risk. It is the duty of the custodians and also prime brokers to check on daily risk analysis and pass this information to the clients. Also, performance analysis and reports should be handed over. Mistakes should not be made in this case because even defecting from the results a little bit can result to huge loses. It is better, to be honest than to lie and cost the client his financial basis.
Remember that not every custodian or prime broker out there will be able to perform wonders when given the job. That is why thorough vetting should be done before a choice on who to work with is made. Guernsey is the home of the best custodians and prime brokers.