“If it keeps on raining the levee’s going to break”[1]

In our case the levee is the prime broker industry and the rain is government regulation of the banking industry. The levee’s not looking too good these days. Recent news from some of the major foreign banks show we have moved, and are accelerating, into the next phase of re-structuring the prime brokerage business.  The script is playing out with the major prime brokers “focusing on our core client base” which is code for “we’re re-pricing or throwing everyone over the side that makes sub-optimal use of our balance sheet”.

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Like any useful product or service, the use of multiple prime brokers by hedge funds has evolved over the last fifteen years. We are now entering our third major iteration of the multi-prime model. Before we look at version 3.0 let’s take a brief tour of the earlier versions of the multi-prime model.

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Pangaea has just developed a new training course: Basel III: The Impact on Prime Brokers and Hedge Funds. There has been much discussion, and confusion, about the effect of the Basel III rules on the banking industry and the subsequent impact on the banks’ clients.

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How will the next crisis look? We’re not talking about cause but effect. No one knows what will tip the balance, where that vulnerable inflection point lies. Examining some possible scenarios can help us to prepare and protect ourselves during the next financial crisis.

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