what is a Prime Broker?
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tl;dr: A Prime Broker is similar to a regular brokerage (like Questrade, a discount broker), except they offer additional banking services (cash management, lending) and only serve large institutional investors.
Right now, I bank with a Canadian bank that offers me the following services:
– Chequing and Savings accounts, to manage my cash
– My mortgage, credit card, and other debt/lending needs
– My direct investing account, where I buy and sell stocks and other assets
– If needed, I could see a financial planner who could assess my financial position and give me information and guidance as needed
Now, if I were a hedge fund instead of just a guy, those needs wouldn’t go away. Hedge funds need cash management services (accounts to hold cash, wire payments, distributing funds to investors, etc.), lending services (specifically, borrowing securities for short positions), facilitating large investing transactions (just like my direct investing app does for me, on a much larger scale), and can offer other services like net asset value reporting, account statements, risk analysis, etc..
Basically, it’s a set of specialized banking services for large financial institutions. Typically, these services are offered by large financial service firms (think Goldman Sachs), and common clients are investment funds like hedge funds or pensions.
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