Rising dealer prime broker spreads could trigger exodus, survey finds

Hedge funds will typically look to switch prime brokers when their provider’s senior credit default swap spreads hit 400 basis points, according to a survey by research firm Aksia published today. Around 50% of managers have explicit triggers at which they will look to replace prime brokers with other counterparties, and these are typically set at around this level – one which a number of major dealers are now approaching.

The survey of mainly long-short equity and event-driven hedge funds also asked managers’ views on the likelihood of a default by Spain or Italy. A majority of managers, 53%, believe that a default or restructuring by one of these sovereigns is unlikely, while 41% think it is a real possibility. Perhaps more surprising is that 4% believe there is no possibility of an Italian or Spanish default or restructuring.