Mastering prime broker relationships: AIMA’s latest guide in focus

To help fund managers navigate this, AIMA (The Alternative Investment Management Association) released the updated Guide to Sound Practices for Selecting and Periodically Assessing Prime Brokers, which was sponsored by Marex.

First published in 2014, the guide provides a practical framework to ensure partnerships stay aligned with a fund’s evolving needs.

On the Mastering Prime Broker Relationships webinar that marked the launch of the guide, I joined a panel of experts to explore the market shifts, evolving client needs and best practices for optimising prime brokerage relationships.

Here are my key takeaways.

Part 1. A shifting prime brokerage landscape

Consolidation and the rise of mid-market players

The prime brokerage industry has consolidated, with some banks exiting the space and others merging, reducing the number of large providers. It has become increasingly difficult for emerging and mid-sized managers to establish relationships with bulge-bracket primes, as they prioritise their larger institutional clients.

Many large banks now require higher balance sheet commitments, stricter risk thresholds and higher revenue potential, making it extremely difficult for smaller funds to meet their criteria.

Mid-market prime brokers, such as Marex, have stepped in to fill this gap, by offering:

• Greater flexibility in service structure and revenue mix
• More transparent and adaptable pricing models, such as asset-based models
• Tailored support for emerging and mid-sized managers

Mid-market primes have become essential partners in helping emerging and mid-sized funds launch, scale and operate efficiently.

The evolving launch environment

Fund launches are recovering, but the headline numbers are more polarised than before. As one panelist put it, we’re seeing a somewhat ‘bar-belled’ landscape; more billion-dollar launches coupled with sub-$100m funds.

One of the biggest trends is the rise of multi-strategy and multi-manager platforms. These setups offer a structured path for managers to access capital and infrastructure, but often come with constraints on autonomy and strategy execution.

Meanwhile, separately managed accounts (SMAs), once reserved for managers with $100m+ AUM, are now being extended to smaller firms, offering them an alternative path to build a track record before transitioning into full fund structures.

Marex believes it is uniquely positioned to support managers exploring these pathways, providing operational guidance and execution support that enables funds to scale.

Client activity and leverage: a more cautious approach

The use of leverage has declined as rising financing costs and macroeconomic uncertainty force managers to be more selective. While leverage was once widely used, today’s managers are prioritising risk-adjusted returns and carefully assessing the cost of financing.

If market conditions stabilise and global interest rates come down, leverage may gradually return, particularly for strategies that depend on it to enhance returns.

The prime brokerage client base has expanded beyond traditional hedge funds, reflecting a broader shift in market dynamics.

Increasingly, we’re seeing:

• Family offices leveraging prime services for hedging and structured investments
• Corporates using prime brokerage for treasury management and hedging
• A geographical shift beyond traditional hubs such as New York, London and Hong Kong, with emerging financial centres
• Niche strategies gaining traction in Eastern Europe, the Middle East and Southeast Asia

Cayman remains the dominant fund domicile, despite ongoing regulatory discussions.

Part 2.  Best practices for selecting and managing prime brokers

Do you need a prime broker, and is one enough?

Not all funds need a prime broker, and not every fund needs more than one.

For some strategies, custodians or clearing-only relationships may be a better fit. However, for funds requiring leverage, shorting or clearing, a prime broker is essential.

For many emerging managers, a single-prime setup makes the most sense, offering simpler operations, lower costs and streamlined compliance. While larger funds often require multiple primes for counterparty diversification, a single, well-matched prime broker is often the most effective choice for smaller and mid-sized managers.

Due diligence and selecting the right prime broker

Choosing a prime broker isn’t just about price – it’s about fit. A common mistake is chasing a big-name prime for credibility, without considering whether they are the right match.

If a fund is too small to be meaningful to a large bank, then it will be difficult for both sides to enjoy a productive partnership.

A strong prime broker should offer:

• Operational support beyond execution and capacity for complex strategies
• Long-term strategic alignment with flexibility to scale
• A client-first approach where the fund is a priority, not an afterthought

A mid-market prime may be better suited to emerging managers, providing dedicated attention, customised service and more agile financing solutions.

Transparency is key – managers who share details upfront on trading activity, financing needs and strategy enable their prime broker to structure a relationship that works for both parties.

Maintaining and enhancing the relationship

A prime brokerage relationship isn’t set-and-forget – it requires ongoing engagement.

Managers should:

• Maintain regular dialogue on capital raising, portfolio shifts and financing needs
• Engage with additional services such as risk advisory, consulting and capital introductions
• Periodically reassess the relationship to ensure it continues to meet the fund’s needs

The strongest prime brokerage relationships are built on transparency and active collaboration. The more open a manager is, the more value they will get from their partnership

Addressing counterparty risk and concentration

Counterparty risk is always a factor, but today’s regulatory environment has significantly strengthened protections.

Managers have more options, from segregated custody accounts to multi-prime relationships, but using multiple primes isn’t always the best approach.

As already mentioned, a single, highly engaged prime broker can be more efficient for smaller funds than managing multiple providers, reducing operational complexity and simplifying collateral management.

Final thoughts: Building a strong prime brokerage relationship

This discussion only scratched the surface of the guidance in the updated AIMA Guide to Sound Practices, which serves as an essential roadmap for fund managers navigating prime brokerage relationships – from selection to ongoing management and reassessment.

This edition places a stronger emphasis on due diligence, reinforcing its critical role in building and maintaining successful partnerships.

For emerging and mid-sized funds, prime brokerages like Marex plays a vital role in providing the flexibility, expertise and tailored support needed to navigate today’s market.

Missed the webinar? Watch the playback here.

AIMA members can download the guide here.

Or contact the prime services team for more information.