AIMA publishes updated guide for selecting a prime broker

The Alternative Investment Management Association (AIMA), the global hedge fund industry association, has published an updated guide for hedge fund managers to use when selecting a prime broker.

AIMA’s Guide to Sound Practices for Selecting a Prime Broker incorporates changes to the regulatory framework that affects the relationship between managers and prime brokers, including reporting requirements and other new measures introduced under the Dodd-Frank Act in the US and Europe’s Alternative Investment Fund Managers Directive (AIFMD) and the European Market Infrastructure Regulation (EMIR).

The Guide, which was drafted by a working group of AIMA members, also reflects the greater degree of due diligence being conducted on prime brokers today and the evolution in the prime brokerage model since the financial crisis.

It includes guidance on appointing a prime broker and issues to be aware of when selecting more than one prime broker, and also highlights the likely impact of future regulatory changes. In addition, it discusses the core services of prime brokers and defines a number of key commercial terms.

The Guide is designed to complement the AIMA Due Diligence Questionnaire for the Selection of a Prime Broker, an updated version of which will be published early in 2015.

AIMA CEO Jack Inglis said: “The manager/prime broker relationship has clearly evolved since the bankruptcy of Lehman Brothers and the wider financial crisis. The regulatory framework within which both prime brokers and hedge fund managers must operate has changed beyond all recognition – putting new pressures on the provision of services, as well as making counterparty risk a core part of every hedge fund manager’s and investor’s consideration. At the same time, hedge funds are now very keen to tap into the competitive advantages of different prime broker offerings.

“For these reasons, it has never been more important for hedge fund managers to fully understand the various issues related to the prime broker relationship and to conduct thorough due diligence before making a selection. We hope that this Guide and the DDQ that it complements will help our members navigate this vital area.”

AIMA’s Guide to Sound Practices for Selecting a Prime Broker is available to AIMA members via the AIMA website.