margined investments with a prime broker and
all long and unencumbered assets in a custodial
bank relationship. Operating models for this
will be varied given a hedge funds’ experiences
dealing with multiple service providers so a flexible
service offering is key to ensure the least strain
on the hedge funds’ operational infrastructure.
Citi is working on developing a seamless
prime brokerage/custody model with an open
architecture framework to allow our clients to plug
and play as they see fit.
• Collateral administration/collateral optimization
In today’s economic environment, robust solutions
are needed to satisfy the demands of global
collateral managers across an ever-broadening
range of products, markets and margining
methods.
Although hedge fund trade strategies have become
more sophisticated, the infrastructure to manage
operational risk in the back office has not kept
pace. Many of the operations linked to collateral
management are still conducted on a manual
basis and, therefore, result in increased risks
with greater relevance in a blended prime broker-
custodian model.
For those hedge funds that are either entering this
area for the first time or have previously managed
their activity through the use of spreadsheets,
the volume and complexity of today’s collateral
management market means that manual processes
are no longer sufficient and new systems are
needed.
Service providers are launching collateral
administration offerings that deliver both
operational solutions to mitigate risk and value-
added services to improve the fund managers’
return on assets and their ability to manage
client relationships. These new services provide
operational support to clients specifically for
collateral management and optimization.
owever we describe the transformation – a
paradigm shift, a sea change, a quantum
leap, a perfect storm – all of us in the
hedge fund marketplace know that our industry
has irretrievably and irreversibly changed. At
Citi, our view, substanti