Quality of prime broker services giving hedge funds itchy feet

New research reveals hedge funds were most likely to switch prime brokers when reviewing service relationships.
By Jonathan Watkins

Hedge funds were most likely to switch prime brokers when reviewing their service provider relationships, according to new research.

Of those fund changing service providers in 2016, 39% switched their prime brokers, while 31% changed administrators.

Only 19% said they changed fund custodian last year, in the report from Preqin.

The most prominent reason for changing prime brokers was cited as being due to ‘dissatisfaction with quality of service’.

Switching service providers is not a routine process for fund managers, showing how their own cost pressures – such as constant fee scrutiny - are forcing them to re-asses their relationships.

Of the funds Preqin surveyed who changed their providers in 2016, 55% said it was down to cost, while 41% made the decision due to dissatisfaction with quality of services.

In Global Custodian’s 2016 Hedge Fund Administration Survey, overall scores were down across the board including relationship management, value delivered and administration services.

“Fund managers not only seek to select the best service providers at launch, but also continually review these relationships in order to ensure that they are getting the best value for money and that the services provided are suitable for their business,” Preqin concluded.

“In order to retain hedge fund clients and win new business, service providers need to address the two leading concerns of fund managers: cost and quality of service.”