Preqin’s Hedge Fund Investor Profiles online service currently tracks 495 institutional investors with an appetite for accessing hedge funds through managed account platforms. Hedge fund managers have recognized the growing demand for hedge funds via managed accounts as the industry sees a growing proportion of experienced and sophisticated investors seeking alternative routes into the asset class. Enhanced transparency and greater liquidity are a few reasons why investors invest through managed accounts; hedge fund managers looking to attract and retain investor capital offer products to meet this demand.
The largest proportion (46%) of investors allocating to hedge funds via managed accounts are fund of hedge funds managers, as show in the chart below. Public pension funds and private sector pension funds, among other investor types, also invest in managed accounts, representing 11% and 10% of investors respectively. Hedge funds via managed account structures are valued by investors due to their capacity to offer a more individual approach to investments; investors can have their capital pooled into one account rather than commingling the assets with other investors, thus eliminating co-investor risk. This approach tends to incur higher minimum investments, however, with managers offering managed account platforms having to supply valuable resources to cater to the individual management of a single investment pool. Preqin’s Hedge Fund Analyst online service shows that the minimum investment for managed accounts is three times higher than that of the overall hedge fund industry. Alaska Permanent Fund Corporation, which initially had exposure to hedge funds through commingled funds of funds, opted for greater control over its investments and now invests exclusively in hedge funds via managed accounts.
According to an investor survey conducted by Preqin at the end of 2014, the results of which are presented in the 2015 Preqin Global Hedge Fund Report, greater transparency was the most cited reason for investing in managed accounts. This is a particularly prominent area of focus largely due to the increasingly sophisticated portfolios constructed by investors, as they seek access to clearer and timelier distribution of reports on their investments. Improved liquidity was also a reason why investors invested in managed account structures, reflecting the importance of meeting underlying liquidity obligations.
Managed accounts are becoming increasingly prominent in the hedge fund industry as investors look for more control over their investments as well as alternative routes into hedge fund strategies. Through managed accounts, sophisticated hedge fund investors are able to mitigate risk and gain access to improved transparency and liquidity terms. The growing offering of managed accounts is creating more choice for investors, and allows for a broader demographic of investors allocating capital in the asset class. It is therefore likely that we will see a significant portion of capital allocated to managed accounts in the future.