Hedge Funds

A new way to free up capital

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Pilot portfolio margining program puts options and securities together

A few months back, a multibillion-dollar hedge fund trafficking in broad-based index options and exchange-traded funds reduced its regulatory margin requirement by a startling 80% - simply by setting up a new account with its prime broker. The fund's move was made possible by a little-used portfolio margining pilot program approved by the U.S. Securities and Exchange Commission. And in dollar terms, the savings were impressive: The fund freed up some half a billion dollars in capital.

For leveraged funds, the capital required to maintain equity