As the amount of institutional money pouring into hedge funds increases, investors are demanding greater transparency and performing due diligence on operational issues. At the same time, the increasing complexity of instruments employed by hedge funds is putting a greater strain on back and middle offices. This is forcing prime brokers to resolve long-standing issues in their tangled technology infrastructure.

Many prime brokers have simply retained their old processes or upgraded them in an ad hoc fashion in response to individual client demands. “Some of the more established prime brokers still use part of the old infrastructure from the 1970s and 1980s – they don’t dare to change it,” says Jesper Bang, head of prime brokerage at Dresdner Kleinwort. “When making enhancements or when they have to be flexible for a client they just add an extra system layer on top of it.