Reconcile broker margin/finance charges quickly and effectively

By: Bill Bormann

When hedge funds access liquidity, they can incur large margin/finance charges from prime brokers. If the manager uses the multi-prime approach, reconciling these charges on a timely basis can be a challenge.

Data received from the prime brokers is received in multiple disparate formats, and by the time the funds treasury group assembles the information in a coherent report, it is too late in the day to act on the information. So, it is reconciled monthly, often grudgingly. Some managers merely “eyeball” the fees and pay them only when charged. There can be risks to overcharges, and the process is time-consuming and error-prone.

In addition, these charges are not broken down and assigned specifically to holdings, so managers often do not factor them in when computing performance at the position or strategy level. 

There is also the issue of margin ratios. When managers borrow on margin, they borrow subject to prime broker-assigned margin ratios. Depending on the security/position, the ratios vary, and they vary based on prime broker. Managers want to optimize borrowing capabilities and they now manually compare terms using tools such as spreadsheets. Again, this is time-consuming and error-prone.

But managers have options other than continuing with the manual approach. They can:

  • Build an integrated application using internal resources, connect directly with the counterparties, and perform automated reconciliations daily
  • Buy a proven market-available solution, implement it, and maintain it going forward
  • Rent or outsource the solution and benefit from a provider that invests in state-of-the-art technology and staff expertise

Read our whitepaper, “Found money? The benefits of transparent control of prime broker margin and financing costs” which introduces and discusses the problem, outlines the pros and cons of the above options, and suggests a solution. For more information, please contact