The future of
financingAbsolute Return, April 2006
Subheadline: "From triparty repo financing and credit ratings to lines
of credit and private placements, new tools may help
boost returns and protect against crisis."
S3 Partners citations:
"All hedge fund managers are waking up to see they are not just asset managers, but operating businesses where financing is just as important as it is to public companies," notes Bob Sloan, founder of S3 Partners, a registered investment advisor that provides outsourced treasury services and liability management to hedge funds.
"A manager thinks that he is raising capital, but it is really debt; the capital is not permanent," says S3's Sloan. "Hedge funds [themselves] would never invest in stocks of companies that had little or no control over suppliers or little or no control or process over their asset/liability mix."
S3's Sloan has built his business around the idea that hedge funds need more flexibility around their balance sheets. Sloan, who once served as head of prime brokerage and equity finance for Credit Suisse First Boston and was the chairman of CSFB/Tremont Hedge Fund Index, notes that prime brokers can do all sorts of things to get out of their commitments besides changing the margin call -- from widening out the bid-offer spread on execution to raising stock lending fees. "Most managers treat prime brokers as a checking account. They think the equity in their account is theirs. But it's not."
In the next credit crunch, the hedge fund industry better hope that Sloan's view doesn't hold up. But if it does, the funds that fare best will no doubt be the ones that have carefully thought through their balance sheets ahead of time.
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S3 Partners welcomes media inquiries.
S3 Partners' media contact is:
Mr. Robert Sloan, Managing Partner
robert.sloan@s3partners.net
Office: 212 715-4300
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