New Managers April 2012

Focus
A look at managed accounts

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Managed accounts: an alternative structure worth considering

Managed accounts of hedge funds have been around since the 1990s, but really took off after the financial crisis of 2008, as investors then flocked to structures offering more control and more liquidity. The frenzy of '08 may be subsiding, but the fund structure remains popular nevertheless, even if (still) costly and complex to run. But as investors in managed accounts tend to be of the large and experienced institutional kind, this compensates.

Opalesque looked at a few findings and talked to a few industry insiders to uncover this mysterious structure - and found it may be more mysterious than expected, as much of the assets in managed accounts are not reported.

In a managed account structure, a hedge fund manager is an investment advisor who is granted the authority to trade on the account, while the account holder has ownership and control of the assets, explains Moody's, the credit rating and research agency. This arrangement provides investors with more transparency and can also, depending on the type of managed account, generally insulate them from the knock-on effects of other investors pulling out of the fund.

Popularity shot up after 2008

"Although managed accounts have been around for a while, they enjoyed a surge in popularity after the market upheaval of 2008 due to the benefits they offer, such as access to liquidity and ownership of assets," says Joanne Job, a Moody's analyst in a 2010 report. "The financial crisis coupled with many hedge funds imposing liquidity restrictions, prompted investors to look for fund offerings that gave them more control over their investments, and managed accounts filled this market need."......................

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This article was published in Opalesque's New Managers a top-down monthly analysis, news and research publication on the global emerging manager space.