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From Komfie Manalo, Opalesque Asia:

Paris and London-based alternative fund management firm Olympia Capital Management released a research paper last week called “Managed Accounts and Tracking Error Risk which said that although managed accounts were clearly an attractive solution to providing better liquidity conditions and transparency than direct investment in hedge funds, it also demonstrates that these advantages come at a price: the tracking error risk.

According to Olympia, managed accounts offer three distinct advantages. First, because trades and prices are controlled and validated by a third party (i.e. the managed account platform), managed accounts mitigate operational risk and especially the risk of fraud (misappropriation, misrepresentation, and mispricing). Second, they dampen liquidity restrictions (gates) placed by the hedge fund managers. Third, managed accounts generally negotiate better liquidity terms than flagship hedge funds.

These perspectives were shared by Sean McGould, president and co-CIO of Florida-based Lighthouse Partners in a recent interview with Opalesque (here).

McGould was quoted as saying: “Managed accounts have allowed us to more specifically manage and control risk, to optimize position sizes and maintain better understanding of overall liquidity. I......................

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