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Hedge Funds Restructure In Wake Of Regulation Implementation 

July 15, 2014
Ann Marie, Value Walk

Opportunities to rethink business approach

New regulations are being implemented soon. Hedge funds need to be prepared for taking advantage of related opportunities including:

  1. More market prevalence: Proprietary trading divisions are waning at investment banks like Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS) as a result of implementation of Volcker rule and Liikanen proposal. As a result, some functions including market making, security inventory management and direct lending are shifting from investment banks to hedge funds. The latter have also used their relationships with institutional investors to co-invest or even invest directly in proprietary trades.
  2. More demand for high quality liquid assets (HQLA) collateral: Hedge funds hold an expanding share of HQLA. They could use HQLA as another way to generate profits by letting other asset managers (hedge funds or traditional long-only) use their collateral pool and price such use effectively. Hedge funds could also work with their counterparts or clients to customize collateral.

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