In a recent Preqin survey featured in Preqin Investor Outlook: Alternative Assets, H2 2014, 29% of investors questioned stated that they invest in hedge funds via managed accounts. The survey also revealed that a higher proportion of investors will be allocating more capital to managed accounts in the next 12 months than in the previous 12 months. In this blog, Preqin takes a closer look at this increasing hedge fund investor appetite for allocating to hedge funds via managed accounts, and what is leading investors to put more of their capital into these structures.
Improved transparency was the most cited reason by investors for investing in managed accounts, with 52% of respondents stating this in Preqin’s survey. Investors want access to clear and timely dissemination of key data, such as details on the holdings to which an underlying hedge fund investment has exposure, as well as material on the fund’s performance. Transparency remains important to investors at all times, from as early as the pre-screening due diligence stages of investment. Preqin Investor Network offers investors this transparency at the earliest stages of pre-screening, allowing all accredited investors to navigate the entire marketplace for new investment opportunities.
A significant 39% of investors stated that greater liquidity was an important reason for allocating to hedge funds through managed accounts, with more frequent access to capital becoming all the more important to investors since the credit crunch. Preqin’s Hedge Fund Analyst online service shows that managed accounts can provide this much needed transparency; they have an average redemption frequency of one month, compared to the typical three months offered by commingled structured vehicles.
Furthermore, managed accounts provide investors with the ability to impose guidelines or restrictions on managers, therefore allowing them to have greater control over their investments. This was the third most cited reason for committing to hedge funds via managed accounts, as opposed to through commingled funds, as stated by 26% of respondents to Preqin’s survey.
Increased transparency, liquidity and greater control of assets are some of the principal reasons that attract investors to commit to hedge funds and funds of hedge funds via managed accounts. In a competitive fundraising environment, and one in which investors have become increasingly demanding of their fund managers, hedge fund and fund of hedge fund managers should consider the advantages of offering managed accounts to their investors as a way to attract, and retain, new investment.