Hedge Fund Mini Prime Brokerage Primer

Guest Author: Alex Thompson

In the world of prime brokerage, there are the Goldman's, the Morgan Stanley's, and the JP Morgan's, and then there is everyone else. The big boys of the prime brokerage world offer the best of trading platforms and great customer service, if your hedge fund is big enough for them to turn a profit on your account. Hedge funds under $100 million in assets might have a hard time getting Goldman Sachs on the phone. Even if that fund was able to get into the Goldman customer book, what kind of servicing do you think they could expect?

Why Use a Mini Prime

A lot of the time, small and mid-size funds can get trading through these larger brokerage houses with similar, and sometimes better, servicing with better pricing by going through a mini prime broker. These mini primes are basically viewed as an omnibus account and go to the prime brokers and negotiate in aggregate. For example, a mini prime with 20 funds with average assets under management (AUM) of $50 million goes to a prime broker and opens what amounts to a $1 billion account. The mini primes can then leverage the group AUM for favorable pricing and servicing from the prime broker. The mini prime then receives the trading commissions for its services.

Benefits of Mini Prime Brokers

So, how do the funds benefit by going to a mini prime broker? Mini primes offer many services to hedge funds including access to a prime broker's electronic trading platforms and full brokerage services. Also, mini primes offer the ability for smaller funds to utilize a multi-prime broker strategy that might be otherwise inefficient because of the additional infrastructure needed. Rather than having multiple contacts for multiple trading accounts, the mini prime serves as the one contact the fund needs to track the different accounts.


One of the biggest benefits mini primes claim to offer small and mid-size hedge funds is capital introduction programs, but often times, the capital introduction department consists of one person who handles a hundred funds. While most of the mini prime brokers have little capacity to offer true capital introduction services, don't be dissuaded of using a mini prime by the lack of true capital introduction programs. In fact, some do in fact have capital introduction programs that are effective, but the bigger hedge funds on the client list are more likely to receive servicing. For that reason, some of the smaller mini prime brokers offer better servicing for a small hedge fund. Also,the other services hedge fund mini prime brokers provide are reason enough for hedge funds to consider the use of a mini prime broker.

How to Choose a Mini Prime Broker

If you have decided to look for a mini prime broker, you need to know how to evaluate the different mini primes. First, it is important to know which prime brokers the mini prime works with, how much they have in AUM with each prime broker, and what kind of pricing they can deliver from each prime broker. You want to ask whether they offer multi-prime servicing and address any concerns about your trading platform needs. Furthermore, if you are looking for a mini prime with true capital introduction capacity, get a feel for how many funds they have per staff members, how many dedicated employees work on capital introduction, and the amount of assets they have raised in their past.

One quick rule in shopping for a mini prime broker is you should be paying less for trading or getting more servicing (or both) than you would without a mini prime. If you aren't, keep looking around until you find a mini prime that can offer you lower prices or better servicing. Once you have a feel for the services each mini prime broker will offer your fund and at what price, you are ready to make a decision.


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Welcome to the Hedge Fund Capital Introduction Blog

Hedge Fund Capital Introduction can be a crucial component to a hedge fund's growth. Most bulge bracket prime brokers offer some form of capital introduction for their larger clients but finding a solid capital introduction program for smaller clients presents a challenge. This site is designed to discuss recent events and updates within the hedge fund marketing/capital introduction space. All contributors with beneficial knowledge are urged to participate.

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