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Managed accounts could lead to problems

Fund of hedge fund managers expect the use of managed accounts to increase but some are concerned that this could lead to problems in the future.

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 hedge funds of funds relative to established hedge funds.

At the Opalesque Roundtable 2009 in Zurich, RMF head of hedge fund research Jaime Castan said that in the past, only weaker managers would provide managed accounts, but now even top hedge fund managers are abvailable on this basis.

RMF intends to hold 80 per cent of its investments in US and Europe long/short managers through managed accounts, but other management groups fear this trend could intensify the throwing of good investments out with the bad in a future financial crisis.

Areca co-founder and chief investment officer Ernesto Prado says: “The move to managed accounts could exacerbate the problems we may be brewing for the next crisis. As products provide more liquidity and transparency, investors who are today selling all assets indiscriminantly – even ones with fantistic value – will be free to pound the market even more violently.”

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