Three main lines of business important to hedge funds

Business Lines Important to Hedge funds

Brokerage

• Execution- buying & selling securities on behalf of customer
• Clearing- back office function related to processing of trades
• Prime brokerage- involves holding assets of hedge fund, keeping records and lending money and securities to support fund’s leverage and short selling

Trading

Refers to taking a position on account of the firm (not a customer). Sometimes the trader will take positions for the firm account designed to help the fund.

Investment Banking

Investment banking brings new securities into the marketplace, of which hedge funds are active investors. Convertible hedgers are major players in the new issue market for convertible bonds. Risk arbitrageurs, who invest in companies involved in M&A, are major consumers of M&A deal flow originated by investment bankers.