Managed Account Platforms Growing Rapidly at Hedge Funds: Infovest 21

Date: Tuesday, November 3, 2009
Author: Carol E. Curtis, Securities Industry News

Managed account platforms, which represent 2 percent to 4 percent of hedge fund industry assets, are growing rapidly and could account for as much as 20 percent of total industry assets by 2014, according to a report released Monday by Infovest 21, a New York City-based information services provider to the alternative investment industry.

Managed account platforms consist of segregated assets under an infrastructure that provides a high level of risk management, transparency, liquidity and due diligence, often for a fee. “They can be a lower risk way to invest in hedge funds,” said Lois Peltz, president of Infovest 21, in an interview.

The platforms tend to be technology intensive. “Vendors of some types of technology, including risk management, might be expected to benefit” from their growth, Peltz said.

Banks, asset management groups, and funds of funds are the most active groups developing the platforms, she said. “Some major large funds of funds with assets over $1 billion have publicly said they plan to transfer a good amount of their assets into managed accounts,” Peltz said. “Since the start of 2009, various platforms have observed extremely high growth and asset flows.”

Estimates are that about 20 platforms now exist, representing $30 to $50 billion in assets. With total industry assets estimated at about $1.3 trillion, managed account platforms represent 2 percent to 4 percent of the industry total assets, at most, Infovest21 said.

However, many hedge fund specialists believe managed accounts will be an increasingly large part of the hedge fund industry, Infovest21 notes, with a number of experts projecting that managed account platforms will represent 15 percent to 20 percent of total hedge fund assets over the next three to five years.

In researching the report, Peltz said Infovest21 interviewed many of the largest managed account platforms and their investors, and also incorporated information from Infovest21 seminars. “More and more managers are open to running managed accounts,” said Peltz. “A number of top managers and larger allocators are looking for their own funds, and some massive multi-billion new platforms will soon enter the market.”

Despite their advantages, challenges exist for managed account platforms, the firm said, including quality of managers, operational difficulties, potential conflicts of interest, and added fees. After a negative 2008, “Investors clamored for change,” Peltz said. “They are demanding more control, transparency, liquidity, due diligence and in some cases, customization. Some want more relevant risk management as well as reputable and solid counterparties with substantial balance sheets.

They want a safer way to invest with hedge funds.”