Financial News Online US-The hedge fund business is becoming more institutionalised by the day. As assets increase, some funds are looking to cut their financing ties with prime brokers by raising their own permanent capital, building in-house reporting and administration capabilities and running their own trading platforms.
Large hedge funds such as Citadel, Fortress Investment Group and Man Group crave self-sufficiency but there is a long way to go before most hedge funds dispense with the trading support offered by prime brokers.
Last year Citadel, the $13bn (€9.5bn) hedge fund behemoth, issued $500m in bonds, marking what many saw as a watershed in the hedge fund business. The bond issue, rated BBB by Standard & Poor’s, was the first step in a $2bn medium-term note programme, designed to cut the fund’s financing ties from prime brokers on which it had previously been reliant.
The move towards permanent financing was designed to give Citadel greater independence from the inconsistent nature of short-term prime brokerage financing. Jim Leahy, vice-president at rating agency Moody’s, said Citadel was not alone in attempting to loosen its reliance on investment banks. He said there were another half-dozen hedge funds in talks about issuing debt in the near future.
