Hedge Fund Custodian

Here at Charter Group, we are fully versed in client’s requirements for custody solutions and have a strong network of custodians who can assist boutique funds looking for cost-effective custodial solutions. Contact us to find out more.

Prime brokers v Custodians

While not all custodians are prime brokers, all prime brokers are custodians. Prime brokers provide a bundle of facilities including trade clearance and settlement, short and long-side financing, custody, position reporting, rolling currency hedging and trading lines. As a matter of course, at least some of these functions are considered “services”, such as settlement, custody and reporting, in contrast to, say, where the prime broker acts as a trading counterparty.

A prime broker is a central broker through whom the fund executes most or all of its trades and who typically acts as custodian to the fund’s assets. When the hedge fund executes trades through other brokers, the prime broker works with the executing brokers to settle and transfer all assets through the prime broker.

This custodial relationship facilitates simpler reporting of the fund’s positions (which in turn simplifies the work of the administrator and auditor) and allows the prime broker to use all of the fund’s assets for margin purposes. Prime brokers typically provide interactive trading platforms with extensive capabilities. In addition to custodial services, prime brokers can provide leverage and margin, facilitate short sales, provide soft dollar arrangements, perform portfolio analysis, stress testing and other services.

More recently, the lines between custodian and prime broker have become blurred with custodians extending their service offering to better compete with prime brokers. Start-up and boutique investment funds often have difficulty in finding a suitable custodian or prime broker given most are large financial institutions with high minimum client asset requirements. Contact us to find out how we can help overcome these hurdles.