Managing a hedge fund requires a veritable arsenal of trading tools.  Among them are the trusty duo of leverage and short-selling.  The arms merchants in these pitched financial battles are the prime brokerages – the bank divisions that cater to the needs of nearly all hedge funds.  Apparently, it’s good work if you can find it.  Hedgeworld cites a new study that pegs the industry at “$8 billion to $10 billion annually”.

Lending money is an ancient business.  But what’s not so old is the business of facilitating short-sales (short-selling began in the 18th century).  And the business of short-selling is about to change dramatically with the entry of what seems to be a flood of traditional managers into the 130/30 space.  This will inevitably put new pressures on the prime brokerages and force them to address a common concern: fee transparency.

Some have wondered if there would be enough stock to short and whether the end was nigh.  Last fall Goldman Sachs hypothesized that the end wasn’t imminently nigh, but might not be far off (we were less sold on their concerns – see posting).  Goldman’s numbers and those cited in the Hedgworld story are quite similar.  Both say there is about $4.5 to 5 trillion of stock available to short in the world (about 10% of the world’s lendable stock and 3% of the world’s total equity supply).

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