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{{a|pb|{{image|Synthetic equity swap|png|}}}}Another one of those things, like [[LIBOR]] and [[supply chain financing]] that seems so ordinary, unfussy, sensible and harmless; that, in its way, points up the holy terror of [[non-linear]] interactions in financial markets. | {{a|pb|{{image|Synthetic equity swap|png|}}}}Another one of those things, like [[LIBOR]] and [[supply chain financing]] that seems so ordinary, unfussy, sensible and harmless; that, in its way, points up the holy terror of [[non-linear]] interactions in financial markets. | ||
=== | === Like hedge funds, but — === | ||
Normal investment funds — even [[hedge fund]]s — have an element of arm’s length about them, in that there are parties involved who entrust each other with grave responsibilities, large sums of money and so on, and if any of them are unnecessarily cavalier things — and more to the point, regulators — can get ugly fast. Regulators in financial services care about the fragile interests of the poor, defenceless super-rich; they presume that grizzled old [[broker-dealer]]s who interact with them can look after themselves. This has not always proven to the be the case, but still. | Normal investment funds — even [[hedge fund]]s — have an element of arm’s length about them, in that there are parties involved who entrust each other with grave responsibilities, large sums of money and so on, and if any of them are unnecessarily cavalier things — and more to the point, regulators — can get ugly fast. Regulators in financial services care about the fragile interests of the poor, defenceless super-rich; they presume that grizzled old [[broker-dealer]]s who interact with them can look after themselves. This has not always proven to the be the case, but still. | ||
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I am making all of this up, needless to say. But you get the picture. It’s Doctors & Nurses stuff for the oligarch set. | I am making all of this up, needless to say. But you get the picture. It’s Doctors & Nurses stuff for the oligarch set. | ||
===When wealthy families attack ... each other=== | |||
Now sure, blood is thicker than water, and everything, but that only takes you so far, and when rich families do fall out, it can be spicy. This can put bona fide external counterparties in a awkward position: They may be managing a long-dated, levered $500m portfolio only to discover that Lorenzo is no longer talking to Giuliano, young Bernardo the GC hasn’t been seen since embarking on a 72-hour coke-fuelled bender in Casablanca three weeks ago, their main position is tanking, you can’t get any instructions, and while common sense would recommend that, for the purpose of not losing even more money they ''should'' talk to each other to agree what to do, they ''won’t''. | |||
This leaves their poor [[broker]] in an invidious position. To whom should it listen? What can it do? The cold logic of the situation says, “close the relationship out” — this is prudent, but may upset the seventh wealthiest man in Florence, and more importantly, his [[Senior relationship management|senior relationship manager]] in the Wealth Management division. | |||
===The Voldemort factor=== | ===The Voldemort factor=== | ||
Still, internecine squabbles don’t happen ''that'' often, and as long as they don’t, at one level, GFOs are harmless, dull and dreary: well, not ''dreary'', exactly — it’s hard not to be a ''bit'' glamorous when you have a superyacht in Monte Carlo and your own Island in the Caribbean — but for a [[prime broker]] these are like [[hedge fund]]s, only smaller — ''usually'' smaller; not always — and with no outside investors making them all the more harmless: no [[ERISA]] money, no — well, limited — [[AML]] worries, no sudden [[NAV]] drops on account of precipitate withdrawals from dissatisfied investors. Just steady sailing from a super wealthy fellow running her own money, and therefore well-incentivised not to throw it around. | Still, internecine squabbles don’t happen ''that'' often, and as long as they don’t, at one level, GFOs are harmless, dull and dreary: well, not ''dreary'', exactly — it’s hard not to be a ''bit'' glamorous when you have a superyacht in Monte Carlo and your own Island in the Caribbean — but for a [[prime broker]] these are like [[hedge fund]]s, only smaller — ''usually'' smaller; not always — and with no outside investors making them all the more harmless: no [[ERISA]] money, no — well, limited — [[AML]] worries, no sudden [[NAV]] drops on account of precipitate withdrawals from dissatisfied investors. Just steady sailing from a super wealthy fellow running her own money, and therefore well-incentivised not to throw it around. | ||