Clients of prime brokers can manage cross-exchange positions with SPAN margin facilities to ensure minimal margin requirements on hedged and offset positions, with overall portfolio risk management.
Find A Prime Broker For Financing & Risk Management
What are financing and risk management in prime brokerage?
Financing and risk management are core prime brokerage services that allow hedge funds to borrow against their portfolios, use leverage, finance long and short positions and manage the risks those positions create.
Prime brokers offer several forms of financing depending on the assets and strategy involved. Margin financing allows funds to borrow against eligible securities, with the amount of leverage determined by margin requirements and portfolio risk. Prime brokers can offer both Reg-T and portfolio margin, with portfolio margin assessing leverage based on the risk of the overall portfolio.
Prime brokers can also provide securities lending, enabling funds to borrow securities required for short positions or lend out fully paid holdings to generate additional portfolio income. Synthetic financing, such as total return swaps, provides another way to obtain leveraged market exposure without owning the underlying assets directly.
Risk management sits alongside this financing. The prime broker monitors leverage, collateral, margin and counterparty exposure, while also providing instruments that funds can use to hedge portfolio risks.
These may include futures and options for market or commodity exposure, interest-rate swaps for managing rate risk, and FX forwards, swaps, NDFs and options for managing currency exposure.
When comparing prime brokers, funds should therefore consider financing rates, margin haircuts, collateral requirements, securities-borrow availability, repo capabilities, synthetic financing, liquidity and access to hedging instruments. For leveraged strategies, these costs and risk controls can have a substantial impact on overall fund performance.