08/07/2020 by Future of Finance 1 Comment
COMPLACENCY ABOUT PRIME BROKER RISK COULD KILL HEDGE FUNDS
A FUTURE OF FINANCE WEBINAR WITH PRIME BROKERS AND HEDGE FUND MANAGERS
29 June 2020 2.00-3.00 pm UK time
The equity divisions of the banks gained from the early stages of the Covid-19 pandemic, as market volatility increased transaction flows and trading opportunities. But hedge fund managers cannot count on the crisis continuing to be kind to their most important counterparties. The longer-term impact of the decline in activity in real economies will not be uniform either. The early evidence suggests banks with exposure to industrial and commercial companies and consumers will be hit harder than the stand-alone investment banks. Although the extraordinary turn in fiscal and monetary policies reduces the risk of full-blown financial crisis, the consequences of the pandemic are bound to damage the capital strength of banks. This Future of Finance panel asks what hedge fund managers should do to manage the risk.
- Chris Caruso, Founder – Pangaea Business Solutions https://www.linkedin.com/in/chris-caruso-7840196/
- Jack Seibald, Managing Director & Global Co-Head of Prime Brokerage & Outsourced Trading – Cowen Inc https://www.linkedin.com/in/jack-seibald-a16b9310/
- Mark Faulkner, Co-Founder – Credit Benchmark https://www.linkedin.com/in/mark-faulkner-64047714...
- Jack Inglis, Chief Executive Office - AIMA https://www.linkedin.com/in/jackinglis/
- Moderator: Dominic Hobson, Co-Founder – Future of Finance https://www.linkedin.com/in/dominic-hobson-49b8222...
Every hedge fund manager will be tracking anxiously the CDS spreads, debt ratings and stock prices of their counterparties. Although this is not (yet) a financial crisis, it could still cause managers a host of financing problems. Right now, governments and central banks are more concerned about the industrial and commercial economies than the financial one. Even though central banks have acted to maintain money market liquidity, short term credit could still be squeezed. The overall need to borrow is rising, and banks are under pressure from governments to keep lending, especially to non-financial borrowers hit by plunging revenues. That is bound, at some point, to dent the capital and liquidity ratios of the banks, prompting them to rein in lending to some sectors. This shock is being administered to money markets already signalling underlying structural problems of liquidity: the massive spike in overnight repo rates in September last year was only the latest of a series of unpleasant surprises. And if hedge fund managers are being hit by sharp declines in equity markets, so are the equity divisions of the investment banks that fund them. If this crisis persists beyond Q2, the focus of prime brokers on the profitability of hedge fund clients could become even more intense than it already is.
Topics of discussion include:
· Pressure on universal bank balance sheets from the pandemic
· Pressure on investment bank balance sheets from the pandemic
· What reserving tells us about loan loss expectations
· What recent gains from market volatility say about the future
· Impact of different equity market trajectories
· How managers should position themselves
About our Sponsor, Apex
Apex Group Ltd., established in Bermuda in 2003, is a global financial services provider. With 45 offices worldwide and 3,500 employees, Apex delivers an extensive range of services to asset managers, capital markets, private clients and family offices. The Group has continually improved and evolved its capabilities to offer a single-source solution through establishing the broadest range of products in the industry; including fund services, digital onboarding and bank accounts, depositary, custody and super ManCo services, business services including HR and Payroll and a pioneering ESG Ratings and Advisory service for private companies.
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