Concerned that investment banks looking to curry trading and prime brokerage business with hedge funds are renting out office space to them at a discount, regulators are beginning to take a close look at so-called “hedge fund hotels,” according to numerous reports.
Specifically, regulators are concerned that investment banks might be charging hedge funds higher trading fees, at investors’ expense, in exchange for low rent. Massachusetts Secretary of the Commonwealth William Galvin has subpoenaed UBS and is investigating other banks for this very reason.
“It’s the same soft dollar question, a conflict of interest issue,” Galvin told The New York Times. “What kind of quid pro quo might be in the placement of an order? What’s the relationship between the entities?”