<img height="1" width="1" src="https://www.facebook.com/tr?id=887284988060755&amp;ev=PageView &amp;noscript=1">
Skip to content
All posts

Hedge Fund Prime Broker & Custodian

A prime broker is a central broker through whom the fund executes most or all of its trades and who typically acts as custodian of the fund’s assets. When the hedge fund executes trades through other brokers, the prime broker works with the executing brokers to settle and transfer all assets through the prime broker.

Prime Brokers & Custodians

This custodial relationship facilitates simpler reporting of the fund’s positions (which in turn simplifies the work of the administrator and auditor) and allows the prime broker to use all of the fund’s assets for margin purposes. Prime brokers typically provide interactive trading platforms with extensive capabilities. In addition to custodial services, prime brokers can provide leverage and margin, facilitate short sales, provide soft dollar arrangements, perform portfolio analysis, stress testing and other services.

Most prime brokers are large Wall-Street institutions that are generally not able to service a hedge fund until it reaches a substantial threshold of assets under management. However, mini-prime brokers or “introducing brokers” act as a liaison between a hedge fund and the large prime broker. Introducing brokers provides startup fund managers access to the full range of services provided by prime brokers.

Most startup hedge funds begin their fund with an introducing broker. Your hedge fund attorney can suggest introducing brokers and custodians.

Note that for most startup hedge fund, the prime broker typically acts as the custodian. However, the role of custodian and prime broker are often performed by separate service providers, often to mitigate risk.



Capital Fund Law Group has authored numerous investment fund publications, including instructive eBooks, white papers, blog posts, and sample offering document excerpts with illustrative footnotes. These complimentary downloads are dedicated to helping fund managers understand the legal fundamentals of launching and operating an investment fund.

Get started now

More Resources

Hedge Fund Ebook
Hedge Fund Ebook