Hedge funds rethink prime broker risk

Date: Tuesday, September 16, 2008
Author: FT.com

About 100 hedge funds that used Lehman Brothers as their prime broker had positions held via the failed bank frozen on Monday as administrators took charge of the London business and the US holding company filed for bankruptcy. Many hedge funds had already abandoned Lehman, shifting balances from the prime brokerage to rivals amid widespread worries about the bank and its plunging share price. But those funds that remain with the bank face uncertainty and possible losses of assets, with several funds and a Lehman broker on Monday saying positions held in London had been frozen. Lehman’s collapse prompted many funds to reassess the riskiness of their prime brokers, divisions of banks which provide leverage to hedge funds and help them sell stocks short. Lehman was the sixth largest prime broker in Europe by assets at the start of the year, but had only 33 sole mandates, according to Eurohedge data. No data was immediately available on its US business, which hedge funds said continued to operate.