According to a recent Bloomberg article, and a couple of my recent clients, Goldman Sachs Execution and Clearing (GSEC) will no longer act as the custodian and clearing agent for most small hedge funds with less than $5 million in AUM. As a quick background, smaller funds which do not have the minimum asset size or strategy to establish a direct relationship a major prime broker will generally establish an account with a mini-prime broker. The mini-prime broker will act as the relationship manager and will interface with the fund manager while the fund assets will be custodialized at the major prime broker.
This move will only affect the very small fund launches and will limit the mini-primes that small funds can use as some mini-primes only execute through GSEC. Current funds utilizing GSEC are not likely to be affected, but those funds which are just now establishing their accounts with GSEC should discuss this issue with their contact at the mini-prime.
Bart Mallon, Esq. runs the hedge fund law blog and provides registration and compliance services to hedge fund managers through Cole-Frieman & Mallon LLP, a hedge fund law firm. He can be reached directly at 415-868-5345.