Liquid White Paper
Critical Infrastructure: Primary Instrument to Generate Operational Alpha
I. The New Asset Class
Prime brokers and hedge funds have a longstanding relationship in the overall hedge fund ecosystem. Through primes, fund managers have access to a suite of specialized services, including cap intro, trade execution, securities lending, margining, international market access, cash trading, derivatives financing, and reporting, all with the goal of enabling managers to generate alpha and communicate performance back to their investors.
Prime brokers have been the indispensable infrastructure partner and one of the most important relationships for any fund manager.
Today, relationships between the two are evolving. The alternatives industry is transforming from a pedigree oriented, performance-based environment to a transparency-focused ecosystem, with expanded fund manager
Fund managers are starting to take advantage of services that not only enable the generation of alpha from an investment strategy, but also uncover ‘operational alpha’ - hidden capital usually locked up within unduly expensive operations. The ability to extract a return on investment from operations will have a direct impact on how competitive fund managers remain going forward and the amount of capital that will be free to invest in alpha generating research, analytics, personnel, and core fund marketing activities over time. In essence, operations represent a new quantifiable asset class—one that not only supports performance but is a source of capital through the elimination of overhead costs.
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