conflicts of interest between prime brokers and hedge funds kate wormald oesa limited
TRANSCRIPT
Conflicts of Conflicts of Interest between Interest between
Prime Brokers and Prime Brokers and Hedge FundsHedge FundsKate WormaldKate Wormald
Oesa LimitedOesa Limited
Prime BrokersPrime Brokers
Capital Capital IntroductioIntroductionn
Prime Prime
BrokerBroker
Direct Direct investmentinvestment
MiscellaneMiscellaneousous
ServicesServices
Stock Stock loanloan
FuturFutureses
OTCOTC
CleariClearingng
CustoCustodydy
ReposRepos
Cash Cash tradintradingg
AdministraAdministrationtion
Hedge Fund StructureHedge Fund Structure
FeederFeeder
FundFund
Master Master
FundFund
FeedeFeederr
FundFund
CaymaCaymann
ManagManagerer
InvestmInvestmentent
ManagerManagerFSA FSA registeredregistered
InvestorsInvestors
Relationship between Prime Relationship between Prime Broker and Hedge FundBroker and Hedge Fund
MasterMaster
FundFund
Prime Prime BrokerBroker
AdministraAdministratortor
CCaymanayman
ManageManagerr
InvestmeInvestment nt ManagerManager
Reality CheckReality Check
Investment Investment ManagerManagerPrime Broker Prime Broker
ConflictsConflicts
Capital Introduction – PB introduces Capital Introduction – PB introduces Investors to the Fund in return for Investors to the Fund in return for what?what?
Direct Investment by PB or an affiliateDirect Investment by PB or an affiliate Provision of Start Up services ranging Provision of Start Up services ranging
from Tax advice, FSA applications, from Tax advice, FSA applications, legal assistance, what next?legal assistance, what next?
Administration servicesAdministration services Trading services Trading services
So what are the potential So what are the potential ConflictsConflicts
Investors – Introduced to Fund but Investors – Introduced to Fund but relationship is with the Investment relationship is with the Investment Manager Manager
Start Up services – Independence Start Up services – Independence Direct investment – conflict between Direct investment – conflict between
commissions on trading side and returns commissions on trading side and returns PB documents protect PB charge assets PB documents protect PB charge assets
how does this fit in with abovehow does this fit in with above Rights to sell at their discretionRights to sell at their discretion Use of assets comminglingUse of assets commingling
Compliance concernsCompliance concerns
Treating customers fairly - who is the Treating customers fairly - who is the customer Investor or Investment customer Investor or Investment managermanager
Money Laundering – who is responsibleMoney Laundering – who is responsible Due Diligence – who is responsibleDue Diligence – who is responsible COMC/MAD – STRCOMC/MAD – STR Dealing Ahead CustomerDealing Ahead Customer Research and Conflicts and MAD Research and Conflicts and MAD
disclosuresdisclosures
Legal RiskLegal Risk
What if there is a problem with the What if there is a problem with the Investment Manager?Investment Manager?
What if an Investor sues?What if an Investor sues? What if there is Money Laundering What if there is Money Laundering
or COMC or other regulatory or COMC or other regulatory investigations?investigations?
ConclusionConclusion
Caution is needed in offering ever Caution is needed in offering ever increasing number of servicesincreasing number of services
Chinese WallsChinese Walls Different entitiesDifferent entities New regulation?New regulation?