Seeking safety with custodians

Financial strength of custodians is key, together with quality, safety and stability of sub-custody. For funds, the probability of having to move to a backup plan has significantly increased. Many are going further in the development of contingency relationships than they might have in the past. Kris Devasabai looks at the custody landscape

In the low-risk, back-to-basics market environment ushered in by the financial crisis, custodian banks have emerged as a safe haven for hedge fund assets. The collapse of Lehman Brothers in September 2008 highlighted the risks hedge funds take on by keeping cash and long assets in a commingled prime brokerage account.

It could be years before hedge funds are able to recover the assets frozen by the administrator as part of the bankruptcy proceedings. Those that had their assets rehypothecated by