Speakers representing Lighthouse Investment Partners, Lyxor Asset Management, Waterstone Capital Management, Bracewell & Giuliani, Newedge GlobeOp and Group offered insights on hedge fund supervisor selection, legal requirements, middle-back office services, monitoring and controls. Sean McGould, president and co-chief investment officer, Lighthouse Partners “We transitioned to managed accounts during the last five years for the added benefits of transparency, flexibility, and control. Full transparency permits a deeper concentrate than has traditionally been the case, especially through the supervisor selection process. For potential managers, there are three primary considerations.
First, does the supervisor offer real diversification or do they compound existing dangers simply? This can only be accurately measured by layering a prospect’s daily position level data in to the portfolio and conducting a deep statistical analysis. Second, is the stock portfolio highly correlated to the most broadly held brands or other dominating styles within the hedge finance universe?
Having the capability to verify the uniqueness of a prospect’s collection is of great benefit and increases the degree of overall diversification. Finally, if these checks are met by the manager, is there a willingness to commit the resources necessary to make a managed accounts feasible and the on-boarding process as smooth as you can?
…Flexibility is paramount to staying opportunistic and taking advantage of market dislocations. Nathanael Benzaken, handling director, Lyxor Asset Management “The two main risks for investors are market risk and operations risk – one to take care of and the other to mitigate… The task with transparency is how to exploit it. To understand risk, traders need solid software, experienced risk managers, and an appropriate risk methodology. Only scenario and stress test models can help evaluate tail risk in dislocated markets. VaR is not appropriate, unless perhaps for manager-level portfolio construction… The managed account’s segregation facilitates operational risk management.
This is the most crucial risk to remove since it creates a short put equivalent position for traders – it’s the ‘dark side’…. All managed accounts and platforms aren’t equivalent. Risk monitoring is nothing, what counts is risk management really. Martin Kalish, chief operating officer, chief financial officer, Waterstone Capital Management “Managed accounts aren’t for everybody – does it fit your business plan?
The manager seeks a long-term trader; the trader requires guarantee of the manager’s experience in owning a managed account. Consider if the trader will understand and become accountable for the profile information they obtain – is more support time needed than for other fund investors? …The mandate is also key – its definitions can significantly impact asset allocation, concentrations, leverage, liquidity, operations and risk management compared to the flagship fund. Cost and resources also matter.
- Claymore 1-5 yr Laddered Corporate Bond (ETF) – $1.87
- Complete withdrawal(s) within 5 many years of death
- 20% International developed country equities
- Cash flow / yield
- 255 ENSCO International Incorporated (NYSE:ESV) -49.9% 29.85 59.62
- Fixed and Semi-Fixed Ratio to Total Cost
- West Texas Intermediate crude increased 0.3% to $56.17 a barrel
Managed accounts are about data management. Operational systems are needed to create reporting transparency. Will there be sufficient operational personnel for trade allocation, settlement and valuation, portfolio accounting and programming? …It’s very difficult to perform multiple funds without investing in technology. Trade allocations should be computerized to mitigate manual treatment. John Brunjes, partner, Bracewell & Giuliani “The structure and terms an buyer prefers in the handled account involve a fully-negotiated process.
For the investment advisor, a managed account is a separate customer under the Investment Advisors take action. At the known level of 15 clients, the consultant must become SEC-registered and operate in a signed up environment – a new challenge for some. For the buyer, the arrangement gives power of lawyer to the manager to operate the account, at the mercy of restrictions the investor defines.