Prime Brokerage For Small Funds - The Squeeze

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Just found an article from today within the WSJ which discusses how many banks and prime brokerage firms are cutting off services to some of their funds which they deem too small (under $200M) or exotic. This is due to necessary cost cutting, risk management and balance sheet clean up projects. Many large shops are segmenting clients into 2-5 lists with the smallest or most exotic funds being the first to be cut from their services such as custody or lending. While those within the industry know that this has been going on for some time now I don't believe the full force of it will be felt until Q3 or Q4 of 2009. Here is the WSJ article excerpt:

Brokerage firms are reducing financing and other services to hundreds of hedge funds, in a move that could accelerate the shakeout among these heavy-hitting investors.

Under financial pressure, securities firms are dividing their hedge-fund clients into lists of those they consider best able to weather the financial turmoil and those they're less sure of. The result is that more funds may have to merge, find other financing at higher cost or close. source

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