As Hedge Funds have grown, they have maintained relatively lean administrative structures.
3rd party technology has been deployed to make fund management, operational and administrative processes more efficient. In particular, technology has been extensively deployed to connect Hedge Fund managers to Prime Brokers and other Brokers through whom transactions are executed and services for the management of the transaction’s life cycle are provided. Some hedge funds are reaching the scale of growth and complexity where they may wish to consider recruiting their own CTO or will the Prime Brokers continue to supply much of the technology and its service requirements?
Prime Brokers have been instrumental in ensuring that technology has not been used for technology’s sake by Hedge Funds, often by extending use of their own technology to the Hedge Funds in order to provide the scale, connectivity and range of access to the Prime Brokerage Unit’s services. Prime Brokers are business units of major investment banks, who source transaction flow through these units. Prime Brokerage Units are forecast to generate US$ 5 billion in revenues for their investment banking masters in 2006. Hedge Funds are estimated to provide an average of 35% of daily transactions volumes through the major exchanges in Europe. They are possibly the most important short-term source of transaction flow for investment banks. The Prime Brokerage Unit is pivotal to the investments bank’s access to this transaction flow.
