Shifts in the financial landscape are forcing institutional investors to rethink conventional investment approaches. After taking a closer look into how prime brokers utilize client assets, long/short managers and investors alike are searching for ways to reduce risk while avoiding increased borrowing and financing costs. Considering an approach that’s entirely different from the traditional prime brokerage model like State Street’s Enhanced Custody is one solution.
In the traditional prime brokerage model, assets can be rehypothecated in pooled accounts and used by the prime broker to finance transactions or generate additional revenue for the prime broker. With heightened focus on credit risk, some asset owners are reluctant to concentrate assets with a prime broker. Many also want more transparency into the use of their assets. Others may use tri-party custody accounts, which can add to the cost and operational complexities of managing a portfolio.
An integrated platform that allows clients to borrow and finance from a segregated custody account
State Street’s Enhanced Custody solution can reduce counterparty risk, offer additional transparency and give you more control over your assets. With this new custody-based model — the industry’s first — you can borrow securities that are primarily sourced from State Street’s industry-leading supply of lendable assets. You can also engage in self-borrowing and self-financing from your own long positions from a custody account. This approach provides a more efficient and cost-effective way to manage long/short portfolios.
With Enhanced Custody, you receive:
> Reduced exposure to credit risk (no rehypothecation of securities in our typical program offering)
> Access to a vast supply of borrowable securities
> Unique ability to “self-finance” and “self-borrow,” allowing you to maximize the value of your own assets
> Reduced cost and operational efficiencies
> More efficient and transparent reporting
> A real-time locate response tool
> Integrated reporting across the entire suite of State Street services