Hedge funds available for prime custody up by 40% since 2010, BNY Mellon

Hedge fund assets available for prime custody services are estimated in $684bn, according to data released today by BNY Mellon. This marks a 40% increase since 2010, reflected both in growth in overall hedge fund assets under management as well in lower levels of borrowing from prime brokers.

“Roughly half of all hedge funds with more than $1bn in AUM are now thought to have a prime custody agreement in place, up from 15% in 2008 as funds increasingly seek to mitigate counterparty risk,” BNY Mellon said.

In the report ‘Prime Custody Comes into the Spotlight’ produced in conjunction with research and consulting firm Finadium LLC, the bank said prime custody is of growing importance to hedge funds.

Prime custody refers to the tailored servicing of unencumbered assets within alternative investment portfolios, performed by both prime brokers and custodians to provide greater transparency and risk mitigation.

“Hedge funds are putting far more emphasis on how they manage custody of their assets and increasingly looking to adopt best practices to ensure their counterparty risk profiles are optimized and meet investor requirements,” said Marina Lewin, managing director at BNY Mellon’s Alternative Investment Services business.

She added: “BNY Mellon works in partnership with its extensive network of prime brokers, so clients maintain their current prime broker relationship but have the added benefit of holding their assets with an independent third-party custodian.

“This new paper highlights the significant growth in the prime custody market in recent years, and we expect the trend to continue,” Lewin added.

BNY Mellon has alternative assets under administration and custody of more than $525bn including over $155bn of prime custody assets.

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