Bank Blip Sends Hedge Funds Lining Up Liquidity Options

Date: Thursday, January 18, 2007
Author: Hedge Fund Daily

The way banks are aggressively going after hedge funds, one wouldn’t know that the HF industry in Europe is looking elsewhere for financing and securities lending services, but Greenwich Associates says that is exactly what’s going on. "There is no doubt that hedge funds receive top-quality service from prime brokers and other financial service firms." Greenwich consultant Andrew Awad said in a statement, upon the release of the 2006 European Fixed-Income Report, but he notes that "several developments over the past 12 months have injected a new element of reality into their relationships with hedge funds." That reality check came last May and June when hedge funds were struggling and several banks "pulled back on the amount of liquidity they extended to edge funds." That was a wake-up call for hedge funds, even as banks soon returned to their merry money-lending ways. Still, says Greenwich consultant Peter D’Amario, that "served as a reminder to some hedge fund managers that the favorable terms they receive...might not last forever." As a result, says D’Amario, hedge funds in Europe are looking to form "relationships with new providers that they will be able to call upon in need of funding and securities and lending services." D’Amario is not saying liquidity is drying up for hedge funds in Europe, but he does suggest that "in certain spots – liquidity has become more expensive or less abundant for brief periods. In response to these bumps, hedge funds appear to be taking preemptive measures to preserve critical resources."