Conflicts of interest between prime brokers and hedge funds
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Conflicts of Interest between Prime Brokers and Hedge Funds. Kate Wormald Oesa Limited. Prime Brokers. Hedge Fund Structure. Relationship between Prime Broker and Hedge Fund. Reality Check. Conflicts. Capital Introduction – PB introduces Investors to the Fund in return for what?

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Conflicts of Interest between Prime Brokers and Hedge Funds

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Conflicts of interest between prime brokers and hedge funds

Conflicts of Interest between Prime Brokers and Hedge Funds

Kate Wormald

Oesa Limited


Prime brokers

Prime Brokers


Hedge fund structure

Hedge Fund Structure


Relationship between prime broker and hedge fund

Relationship between Prime Broker and Hedge Fund


Reality check

Reality Check


Conflicts

Conflicts

  • Capital Introduction – PB introduces Investors to the Fund in return for what?

  • Direct Investment by PB or an affiliate

  • Provision of Start Up services ranging from Tax advice, FSA applications, legal assistance, what next?

  • Administration services

  • Trading services


So what are the potential conflicts

So what are the potential Conflicts

  • Investors – Introduced to Fund but relationship is with the Investment Manager

  • Start Up services – Independence

  • Direct investment – conflict between commissions on trading side and returns

  • PB documents protect PB charge assets how does this fit in with above

  • Rights to sell at their discretion

  • Use of assets commingling


Compliance concerns

Compliance concerns

  • Treating customers fairly - who is the customer Investor or Investment manager

  • Money Laundering – who is responsible

  • Due Diligence – who is responsible

  • COMC/MAD – STR

  • Dealing Ahead Customer

  • Research and Conflicts and MAD disclosures


Legal risk

Legal Risk

  • What if there is a problem with the Investment Manager?

  • What if an Investor sues?

  • What if there is Money Laundering or COMC or other regulatory investigations?


Conclusion

Conclusion

  • Caution is needed in offering ever increasing number of services

  • Chinese Walls

  • Different entities

  • New regulation?


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