Alternative Asset Managers: Cash Management Landscape in a Post Basel III World


As a result of the 2008 financial crisis, the Basel Committee on Banking Supervision (“BCBS”) has proposed standards to provide stability to the banking sector by implementing safeguards that are intended to make banks more resilient in a financial crisis. Specifically, the BCBS under Basel III has introduced, amongst other things, stricter capital requirements, leverage limitations and liquidity provisions.

Impact of Regulatory Reform / Liquidity Coverage Ratio

Compliance with new regulations has led banks to withdraw from, or change pricing for, accepting cash deposits from alternative asset managers (“AAMs”). In addition to Liquidity Coverage Ratio (“LCR”) guidelines, banks face increased costs relating to compliance activities (such as enhanced know your customer requirements) and SIPC. AAMs and private equity (“PE”) funds have been left in a position in which many banks are unwilling to hold their cash. Several banks have, in fact, exited the cash management business. This article seeks to provide some background on the current landscape, and highlight some of the solutions that are being presented. At the highest level, AAMs are being forced to either pay higher fees in the form of negative spreads on cash or to accept risks in Money Market funds and other products rather than holding cash at their prime brokers.

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