CLIENT SERVICES IN PRIME BROKERAGE: The Rise of Tailored Support
A Shift in the Prime Brokerage Relationship
Prime brokerage has long provided essential infrastructure for hedge funds and family offices. But over the past several years, the expectations around that relationship have changed.
What was once a transactional service—execution, custody, margin—is now expected to be a strategic partnership, built around the client’s individual needs. More firms, particularly newer launches and sophisticated family offices, are asking: “What does it look like when my prime broker actually understands my book, my risk tolerance, my strategy, and my growth path?”
That shift is not theoretical—it is currently reshaping how services are delivered across the industry.
From Standardization to Customization
No two hedge funds are identical. Quant strategies, credit funds, long/short equity, macro—each has distinct financing, operational, and reporting needs. Yet for years, prime brokerage services tended to offer relatively standardized solutions.
That’s changing. Increasingly, clients expect: – Custom financing structures – margin methodologies and short financing that reflect strategy-specific needs – Flexible operational setups – integrations with fund-specific tech stacks, customized reporting, or unique settlement flows – Support across asset classes and geographies – not just execution, but seamless clearing and custody across global markets
Where once clients might have adapted to their prime’s systems, they now expect the reverse: bespoke services built around them.
The Role of Responsiveness
Customization isn’t just about infrastructure—it’s also about people.
What many hedge funds value most today isn’t a slick portal, but rather a responsive relationship. Someone who actually answers the phone as well as someone who knows the fund’s structure and can escalate a margin issue quickly or troubleshoot a corporate action anomaly before it becomes a problem.
This is especially true for emerging managers, who may lean on their prime for guidance beyond trade execution; but it also holds true for established funds, who expect prompt, proactive communication when navigating complex, high-volume trades or operational challenges.
Beyond the Core: Value-Added Services
Today’s prime brokerage often includes a broader ecosystem of support. For funds looking for more than the basics, the industry increasingly offers: – Capital introduction – particularly useful for emerging managers or those building new mandates – Outsourced trading desks – to augment execution capabilities without building a full in-house desk – Tailored securities lending – especially for strategies with complex shorting needs – Risk analytics and transparency tools – real-time portfolio insights, margin modeling, or custom dashboards – Operational consulting – from launch planning to best practices in reconciliations, NAV oversight, or compliance workflows
None of these are new concepts. What’s new is the expectation that they be modular, flexible, and available if—and when—the client wants them.
Global Platforms, Boutique Service
One trend across the industry is the attempt to strike a balance: combining the reach and stability of a global platform with the attentiveness and flexibility of a boutique.
For clients, the ideal partner tends to be one that can scale with them—across markets, asset classes, and fund structures—without sacrificing the high-touch experience they expect.
Some firms, like Mirae Asset, have leaned into this model: building infrastructure that spans markets across North America, Europe, and Asia, while structuring their client services teams to provide on-the-ground, relationship-based support.
What Clients Are Asking For
In conversations across the industry, several recurring themes stand out among hedge fund and family office clients seeking prime brokerage services:
1. “Will they really prioritize me?” In a world where some large banks are selectively offboarding, clients want to know they’re not an afterthought.
2. “How responsive are they?” Especially during volatility or month-end crunches, delays can become costly.
3. “Can they handle my complexity?” Whether it’s a multi-strategy structure or a launch across multiple domiciles, cookie-cutter setups won’t cut it.
4. “Do they know how to help me grow?” Prime brokerage is increasingly seen as part of the growth infrastructure—not just a middleman for trades.
Final Thoughts: Choosing the Right Fit
There is no universal blueprint for the ideal prime brokerage relationship. But for many hedge funds and family offices, the calculus has shifted and capabilities matter, as does balance sheet. As well as customization, availability, and trust.
Prime brokerage, at its best, is not just about trades—it is about partnership. As the industry moves toward more flexible, client-driven models, managers have more options than ever to find a partner aligned to their vision, complexity, and ambition.
THE FED'S NEXT MOVE: Hedged Messaging, Data Crosscurrents, and the Rates Dilemma
The Federal Reserve, led by Chair Jerome Powell, continues to embody its reputation as a hedged institution. Officials frequently deliver mixed signals to preserve flexibility. In May, Powell described the U.S. economic situation as "very uncertain," refusing to commit to a policy direction:
“It’s not at all clear what the appropriate response for monetary policy is at this time.”
This cautious posture is deliberate—but also familiar. The Fed is not just hedged; it's historically reactive. With dual mandates grounded in lagging indicators—inflation and employment—the institution tends to wait until data is undeniable before pivoting. Its moves are rarely anticipatory. Instead, the Fed waits until markets, jobs, and price levels force its hand. As a result, it often arrives late to both the inflation fight and the growth rescue.
That institutional design explains today’s ambiguous communication. With inflation ticking up due to tariffs and growth indicators turning cloudy, Powell and colleagues are standing still—carefully watching the data, but unwilling to get in front of it.
Split Messaging: Competing Fed Narratives
Some Fed officials are sounding alarms. Fed Governor Adriana Kugler stressed the need to keep rates high for “some time” to combat inflation. St. Louis Fed President Alberto Musalem argued that new tariffs and immigration constraints could stall disinflation and necessitate a more restrictive policy path.
Others are more dovish. Atlanta Fed President Raphael Bostic expects two cuts in 2025, while Chicago’s Austan Goolsbee highlighted the progress already made on inflation, urging patience and caution.
These divergences are not accidental. They’re part of the Fed’s long-standing strategy of hedging—floating a range of interpretations while avoiding commitment. Powell regularly returns to the same refrain: they are “data dependent.” What that really means: we’re not going to act until the data makes the decision for us.
Inflation: Solved—Until It Wasn’t
Headline and core inflation cooled into early 2025, with core PCE hitting 2.3% in March. Powell even acknowledged inflation “appeared solved.” But the Trump administration’s surprise tariffs have flipped that narrative. Goldman Sachs estimates these import taxes could add up to 2.25 percentage points to core inflation by early 2026.
The Fed now faces a textbook stagflation dilemma: rising costs due to trade barriers paired with slower demand. It’s the type of exogenous shock that blurs the policy path—and ensures the Fed does nothing until outcomes become clear.
Labor Market: Still Resilient, But Cooling
The unemployment rate has crept up to 4.2%, from the post-pandemic low of 3.4%. April’s jobs report showed 177,000 new payrolls—steady, but down from last year’s pace. Beneath the surface, softness is emerging: job losses in Q1 2025 totaled nearly 500,000, particularly in goods-producing sectors.
For now, Fed officials characterize the labor market as “healthy but cooling.” That buys them time. But if job losses continue to mount or unemployment pushes beyond 5%, a shift in posture becomes more likely. Still, true to form, the Fed is unlikely to lead that pivot. They’ll react when it’s confirmed—not anticipate it.
Growth: The Economy Hits a Speed Bump
After a 2.4% expansion in Q4 2024, GDP contracted 0.3% in Q1 2025. Consumer spending slowed, and confidence dropped to levels not seen since early 2020. Businesses pulled back investment amid tariff uncertainty. Yet Powell was quick to call this a "bump," not a turning point.
This is typical Fed behavior: don’t overreact to noise. But the risk is that by the time the Fed distinguishes signal from noise, the economy has moved on—usually in the wrong direction.
Tariffs: A Supply Shock in Motion
Powell called the new tariffs “significantly larger than anticipated.” The Fed sees them as a stagflationary supply shock—raising prices while damping growth. Officials are watching for second-round effects in consumer prices and inflation expectations.
But once again, don’t expect preemptive action. The Fed is waiting to see how it plays out in the data—months from now. That’s the paradox: the Fed can’t respond until it's already too late to avoid some damage.
Reaction Thresholds: What Forces a Move
Despite all the ambiguity, the Fed appears to be anchoring around two soft thresholds:
- Inflation: If core inflation clearly trends toward 2%, rate cuts are likely. But persistent readings above 2.5%—especially with rising expectations—could force hawkish patience.
- Unemployment: A sustained move above mid-4% levels, especially with broad-based job losses, could tip the balance toward easing. The Fed’s own March SEP forecast unemployment at 4.1% by year-end; a meaningful overshoot would be tough to ignore.
But again, the Fed is not predictive. They’ll wait for clear and confirmed trends before moving. That often means policy arrives after the inflection point—not before.
Markets and Sell-Side Forecasts: Divergence Widens
Markets are pricing in one to two cuts by late 2025, with futures implying easing in Q3 or Q4. Sell-side shops are split:
- Goldman Sachs expects three cuts (July, September, November), citing recession risk from tariffs.
- J.P. Morgan expects one or two cuts in H2 2025, contingent on inflation cooperating.
- Morgan Stanley says no cuts until 2026 if inflation proves sticky.
These forecasts mirror the Fed’s own internal split. More importantly, December Fed Funds futures now price ~40 bps below the Fed’s median dot plot, signaling that markets expect the Fed to eventually fold—even if Powell isn’t ready to say so.
Treasury Yields and the Debt Wall
The Fed’s room to maneuver is further constrained by Treasury market dynamics.
Roughly $9.2 trillion in U.S. debt matures in 2025—about 30% of GDP. Add another $1.9 trillion in projected deficit issuance, and you’re staring at $10–11 trillion in total refinancing.
Yields reflect that pressure:
- 3-month bills: ~4.3%
- 2-year: ~4.0%
- 10-year: ~4.5%
- 30-year: ~5.0%
The front of the curve is inverted, but long rates remain elevated as investors demand compensation for duration, inflation risk, and supply indigestion.
So far, auctions have held up. But Treasury’s interest expense is exploding: $950 billion in FY2025, likely $1 trillion+ in 2026. While the Fed doesn’t explicitly manage Treasury funding costs, they can’t ignore the consequences. If yields spike further or auctions falter, the Fed could halt QT—or, if markets seize, step in more directly.
Conclusion: Wait for the Obvious
The Fed’s next move remains elusive—and that’s by design. Powell and his colleagues won’t pre-empt anything. Instead, they’ll wait until the data paints a clear and inescapable picture. That means confirmation of inflation falling to target or meaningful damage in the labor market.
Until then, we’re in limbo: no hikes, no cuts, just data watching. That leaves markets to price probabilities and guess which threshold will break first.
For now, the Fed’s reputation as a trailing institution holds. It will not act until it must—and by then, the market may already be two steps ahead.
FUNDING PRESSURES ARE BACK: What it means for hedge funds and the prime brokerage landscape
After years of low-cost leverage, equity financing costs are back in the spotlight—and not in a good way for most market participants. Borrowing costs to short equities have jumped, and stock loan rates are materially higher than they were even a year ago. Many prime brokers are increasingly steering clients toward equity swaps as an alternative, which introduces its own pricing complexities. Whether funds are using margin, swaps, or borrowing stock directly, the reality is the same: financing has gotten more expensive.
This matters, especially for small and mid-sized hedge funds and family offices. Higher funding costs eat directly into returns, making previously profitable strategies less compelling. For long/short equity funds in particular, this environment demands a re-evaluation of financing arrangements and a closer look at prime brokerage relationships.
A New Cost of Doing Business
Financing costs are the invisible tax on leverage. When hedge funds short equities or trade through swaps, they're effectively renting balance sheet from their prime broker. That rental cost—a combination of the risk-free rate, a borrow fee, and an added spread—has climbed significantly.
In theory, higher spreads should normalize as markets stabilize. But this time, that isn't happening. Even after recent volatility brought equities lower, funding costs have stayed stubbornly high. Research from JPMorgan shows that financing costs remain in the top quintile of the past five years.
The persistence of these elevated levels suggests structural, not cyclical, forces are at play.
Demand Is High. Supply Is Constrained.
The first piece of the puzzle is demand. A wave of systematic and derivatives-based strategies has increased the need for leverage and stock borrow. Long/short equity funds, quant strategies, and macro portfolios are all competing for a limited pool of prime brokerage capacity.
But the real story is on the supply side. Major banks—still the dominant providers of equity financing—are constrained. Post-crisis regulations, particularly Basel III and the Supplementary Leverage Ratio (SLR), have forced banks to ration their balance sheets.
This matters because when a bank extends leverage or lends hard-to-borrow stock, it has to reserve capital against that exposure. As bank balance sheets fill up, equity financing becomes a more scarce and expensive commodity.
In today’s environment, that scarcity is showing. Traditional prime brokers are less willing or able to provide balance sheet at scale—and when they do, it comes at a premium. Many banks are also pushing clients toward equity swaps, which allow them to manage balance sheet exposure more efficiently—but often with less transparency and less favorable economics for the client.
Why It Hurts Smaller Funds More
The current dynamic disproportionately impacts small and mid-sized hedge funds. Large multi- manager platforms and the biggest global macro funds still command balance sheet access, albeit at higher prices. But smaller funds—those running a few hundred million or less—are often left with take-it-or-leave-it pricing, inflexible margin terms, or reduced access altogether.
This trend isn't new, but it's becoming more pronounced. Several of the bulge-bracket banks have made clear they are focusing prime brokerage resources on their largest clients. That leaves emerging managers and family offices caught in the middle: needing leverage to stay competitive, but increasingly priced out of efficient access to it.
The result? Reduced capital efficiency, narrower strategy spreads, and more time spent managing financing logistics instead of generating alpha.
A Market Opportunity, If You Have the Capital
There is a flip side to this imbalance. For cash-rich entities or firms with large, unconstrained balance sheets, these dislocations are attractive. Higher stock borrow costs and wider swap spreads open up arbitrage opportunities—such as facilitating short positions for others or entering into synthetic financing trades.
Pension funds, sovereign wealth funds, and large asset managers are stepping in to provide financing directly or indirectly, capturing the elevated spread that banks can’t efficiently intermediate.
Some hedge funds have adapted by deploying their own balance sheet where possible, or by reducing reliance on traditional PB services. Others are looking beyond the bulge bracket for better terms.
The Prime Brokerage Model Is Shifting
This environment is reshaping the prime brokerage industry. The historical dominance of a few global banks is being challenged not just by cost, but by structural constraints. In their place, asset managers, non-bank dealers, and boutique primes are expanding their role.
Crucially, the ability to commit balance sheet has become the differentiator. Execution services and technology matter, but in a world where stock borrow and swap financing can vary by 50 to 100 basis points depending on your provider, balance sheet is king.
Hedge funds that proactively revisit their financing relationships are finding opportunities to reduce drag, improve flexibility, and secure more durable terms. That might mean diversifying across providers, engaging with newer entrants, or negotiating more bespoke terms.
Looking Ahead
It’s unclear whether elevated funding costs are the new normal or just a temporary dislocation. But either way, hedge funds and family offices can't afford to ignore the shift.
In a high-rate, balance-sheet-constrained world, prime brokerage is no longer a commoditized service. Major banks are selectively allocating their balance sheet to the largest and most profitable clients, often leaving smaller funds with limited access, higher costs, or less favorable terms. It's a strategic input. Managers that treat it as such—and partner with providers who have both the willingness and ability to extend balance sheet—will be better positioned to compete.
For funds navigating this environment, the message is clear: financing is no longer a back-office detail. It’s a front-office priority.