Goldman Sachs Teams Up With HazelTree to Attract Hedge Fund Cash

  • New partnership aims to create alternative to large banks
  • Venture prompted by adoption of Basel III regulations

Goldman Sachs Group Inc. has created a partnership to provide cash management services for money managers who may no longer be able to keep their cash at large banks.

Goldman Sachs Asset Management said in a press release Wednesday that it is teaming up with HazelTree, a New York-based firm, to offer the service to hedge funds, fund administrators, managed account providers and family offices. Goldman Sachs said the partnership was created in response to changing regulations for large banks that have been deemed SIFIs, or systemically important financial institutions, and are subject to Basel III guidelines on capital requirements and balance sheet composition.

“Because of these new requirements, banks’ desire to accept or retain short-term cash deposits on their balance sheets has become challenging for SIFIs, and many institutional investors may not be able to keep cash balances on deposit in the same way they have in the past,” Stephen Casner, chief executive officer of HazelTree, said in the statement. Casner said hedge funds, in particular, will be under pressure to find alternatives for their cash.

Prime brokerage, the business of lending to and servicing hedge funds, has become less profitable as measured by return on equity under Basel III, which are new rules being put in place to prevent a repeat of the 2008 financial crisis. The regulations have prompted the biggest banks, including Bank of America Corp. and JPMorgan Chase & Co., to increase fees or trim relationships with clients that don’t meet profitability targets.

Goldman Sachs Asset Management oversaw $1.2 trillion as of Sept. 30, including $277 billion in money market and short duration fixed-income solutions.

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