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Prime brokers: Hedge funds go outsourcing

Increasing regulatory costs for hedge fund managers are leading large players to make a U-turn and look to outsource back-office functions, says Tom Kerns, global head of client reporting and product integration at Deutsche Bank Global Prime Services.

Deutsche bolsters its prime services offering to meet demands

Kerns is head of Deutsche’s prime services consultancy group, which was established at the beginning of this year to offer advice to hedge fund managers looking for third-party service providers such as administrators, software vendors and accountancy firms. “As costs go up and returns come down, hedge fund managers are now considering where they can cut overheads,” he says.

Kerns reckons the process amounts to evolution gone full circle. When hedge fund managers first establish themselves they often have to rely on third parties to provide them with administration. As they grow, managers tend to build their infrastructure and bring middle-office and back-office functions in house. However, Kerns says that since the beginning of 2006 many of Deutsche’s larger hedge fund clients have been looking at outsourcing some of their back-office operations in order to lower internal costs.

Why prime brokers cost so much relationships by fund size
Source: TABB Group

Finding third parties to cope with hedge fund managers’ complex demands is not easy, Kerns claims. “Large hedge fund managers are looking for an administrator that can process their complexities,” he says.

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