West Palm Beach (HedgeCo.Net) – The Government Accountability Office has said that using multiple Prime Brokers could pose risks to the economy. Currently, most large hedge funds do employ multiple prime brokers to assists in things like trading, lending, as well as to provide introductions to high-net worth individuals.
The concern stems from the lack of transparency that results from using multiple prime brokers. Since no single broker has access to all of the information regarding a hedge fund, investors might not be able to analyze numbers efficiently or assess their potential risks due to the lack of available information.
Some say this is yet another ploy to try and force guidelines on the un-regulated hedge fund industry. Although the SEC regulates hedge fund managers, they do not regulate hedge funds. Consolidation of information may just be the first step in the government’s long-term plan to tighten their grip on hedge funds.
“We need to ensure that we have adequate knowledge of this sector of our capital markets and effective market discipline, especially as the pension assets of more and more Americans are invested in hedge funds,” said Rep. Paul Kanjorski (D-Pa.).
The report was requested in 2006 by three Democratic Representatives.
Most hedge fund managers would agree that their use of multiple prime brokers has nothing to do with disingenuity, but rather it has to do with the size and complexity of some hedge funds.
Tom Essaye, fund manager for Live Oak Investment Partners, says, “It doesn’t matter if a hedge fund has 1 or 50 prime brokers. The administrators and the investors are getting all of the same information.”
Julie Scuderi
Senior Editor for HedgeCo.Net
Email: julie@hedgeco.net]
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