Goldman Sachs has scored an important first for a prime broker in Italy by winning the regulatory approval to act for the first hedge fund to be established onshore in the country since the regulations were changed last year. It is acting for Kairos, a European long/short fund which has traded offshore for several years, but which now wants to use its reputation to tap Italian savings onshore. Italy has witnessed a remarkable flowering of hedge funds in recent years, as talented fund managers have sought release from the restrictions of life and lifestyle in the major Italian fund management companies. But most were forced to set up abroad, and not only in traditional locations such as the Cayman Islands: many chose to establish themselves just over the Swiss border in Lugano. This was not a development the Italian regulators viewed with equanimity, especially as domestic investors have a growing appetite for hedge fund strategies. Belying the national reputation for bureaucratic inertia, the Bank of Italy and the Consob have between them devised the clearest and most advanced regulatory framework for onshore hedge funds anywhere in Europe. (Their rules are thought to be the first to refer to the term “prime broker” in an official regulatory framework.) The Italian regulators have insisted not only that hedge funds appoint a prime broker, but that they also use an Italian bank as custodian/trustee and fund administrator. In this case, Goldman has joined forces with the fund administration arm of Intesa BCI, to which it will act as sub-custodian while the Italian bank takes on the fund administration duties. The news caps a good twelve months for Goldman, in which its bold decision two years ago to build up capacity was thoroughly vindicated. The firm has won not only a swathe of new funds setting up in Europe but eroded the established share of long-time market leader Morgan Stanley.