Fund of hedge fund managers say the industry is moving towards managed accounts because investors who were locked into funds that restricted redemptions now want greater transparency and liquidity.
Managed accounts are segregated mandates run by underlying hedge fund managers for a fund of hedge funds manager. They provide a higher level of transparency for funds of hedge funds relative to a fund structure because the assets are owned by the fund of hedge funds, not the underlying hedge fund.
At the recent Opalesque Roundtable 2009 in London, Max Gottex, senior managing director of fund of hedge funds manager Gottex, said many underlying hedge fund managers imposed gates and similar restrictions on redemptions last year, which has driven a demand for greater control and liquidity through managed accounts.
Gottex said his firm has created its own managed account platform to help achieve its target of having more than 25 per cent of its portfolio in managed accounts by 2010.
He said: “When we speak to our peers – fund of hedge fund managers – every single one of them is looking to move between 30 and 50 per cent of their assets into managed accounts.
“Although managed accounts provide clear benefits, they can also have some drawbacks such as additional costs and potential tracking errors but in my opinion the benefits far outweigh the negatives.
“We believe that the industry will move much more aggressively into the managed account model as its benefits are better understood.”