Of course, simply having multiple prime brokers is not a panacea for all hedge fund
counterparty ills. To complement the diversification achieved by having a multiple prime
arrangement, a thorough analysis of each counterparty is required. Having the
right counterparties is clearly critical and encompasses other factors such as service
and pricing as well as financial viability, capital ratios, quality of capital and leverage.
The lessons of 2008 are all-too fresh and the strength of the prime broker and its
bank parent need to be carefully considered. Fortunately for Canadian banks, they have
emerged out of the detritus of the global financial meltdown with top credit ratings
and are extremely well-regarded internationally as the following chart from Standard &
Poor’s indicates.