Lehman factor imperils hedge funds

Prime broking contracts stipulate that Lehman can treat hedge-fund clients' assets as its own, putting an untold amount of fund assets at risk; but Japanese regulators move to ensure an orderly unwinding.

Hedge funds may be jeopardised by the collapse of Lehman Brothers. LehmanÆs prime broking operation, whilst not at the magnitude of Morgan Stanley and Goldman Sachs, had a presence in Asia, especially in Japan. Their customers want to know what will happen next.

It appears at this early stage that fully paid securities held in client names are safe. However, assets pledged by a hedge fund as original and variation margin for a loan will go into the pot of...

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