Hi,
Would anyone please share the experience of credit risk analyst for hedge fund coverage?
What kinds of products are offered and what kind of credit analysis is performed?
Really appreciate the help!
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Depends on if your firm is a full service prime brokerage.
My understanding is that typically you’re underwriting securities financing (HF wants to borrow securities to go short, possibly some repo) and OTC derivatives (TRS, FX, etc.)
A full service prime brokerage is going to be doing margin lending as well, and generally being there to create leverage for the HF if needed.
As with any credit analysis you’re looking at a mix of quantitative factors (AUM/NAV, leverage, OBS derivatives, volatility, redemption rules) and qualitative factors (manager’s amount of experience, reputation, history of fund).
Thanks! My firm is a national bank I assume it will be the same as full service prime brokerage? Also is there any online training or documents I can read to better prepare myself?
I wouldn’t assume that, as many investment banks and national banks don’t have a full service prime brokerage platform. Try googling your bank to figure that out. Your job is much more interesting if you’re working for the PB because you have the potential to pitch your bank to the HFs and win their business (I.e coverage). Top tier PBs (looking at you Morgan Stanley) even help HFs find investors and they also host yearly HF conferences. Of course, a PB is also providing all the operational bullshit that a HF needs too. But that comes with the territory. You are the HFs bitch.
I have no specific links for you, sorry. Look into the securities financing industry, securities lending specifically as that is how HFs go short. Read into how Hedge Funds generate leverage (both on and off balance sheet), and how they are structured (feeder/master funds). Google some high profile HF defaults.
Thanks again! so if the role is for hedge fund credit risk coverage, should I just go over securities lending and OTC derivatives products?
Those would both be good things to study up on. I doubt that you are going to be asked to price a derivative or anything that involved, but understand them and /why a hedge fund would use them. Know what a Monte Carlo simulation is. I also mentioned some other things in my other comment, like researching the Hedge Fund industry and what services a broker (prime brokerage) provides to a HF, both of which are undoubtedly more important that you studying anything quant related.
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