NAST Conference

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NAST Conference

• December 2006

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Drivers of Change

• Market Forces
• Transparency
• Limited sources of end user market data
• Intermediary data is useful for peer comparison,
  not intrinsic measurement
• Efficiency
• Dual intermediation with no incentive for current
  market participants to evolve
• Accountability
• Difficult to perform as fiduciary under current
  model
• Economic Forces
• Prime brokerage bundled fee model is untenable
• Custodial bundled fee model is untenable

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Times of Change

• Inverted credit and capitalization equation
• In aggregate, brokers better capitalized than
  custody banks
• Large hedge funds better capitalized than brokers
• Conflicted relationships between intermediaries
• Prime brokers going direct to lenders for
  exclusives
• Custody banks constrained from lending direct to
  hedge funds
• Prime brokers are largest customers of custody
  banks

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Industry Trends

• Increasing Sophistication
• Hedge Funds
• Equity Repo for financing
• Direct access to supply for borrowing
• Institutions
• Direct lending to hedge funds through credit
  intermediaries
• Focus on intrinsic loan value vs. higher risk
  cash reinvestment
• Recognizing true value of indemnification
• As investors in hedge funds, much better risk
  comprehension
• Emergence of Alternative Service Providers
• Quadriserv
• S3 Partners
• Vodia Group

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