Webinar: The regulator says it is time for fund managers to measure, mitigate, manage and monitor outsourced operational risk
AUDIO: An audio replay of the Webinar. Click on the 'Play' button to listen.
Approximately one third of institutional investors allocate into managed accounts and that number is projected to grow steadily. The main selling points of managed account platforms (MAPs) to hedge fund investors are their transparency, liquidity and high levels of governance. But there is a widely-held view among investors that these platforms are immune to failure. However, managed accounts have and will fail, as we saw with Plus Funds in 2006 and, most recently, AlphaMetrix in 2013. So just how safe is your managed accounts platform?
Post 2008 managed accounts were sold as a protection against Madoff risk – even though those who had allocated money to Madoff via managed accounts run by Madoff Securities found they were no better off, and we had already experienced the Plus Funds problem in the wake of the failure of Refco in 2006, in which Plus Fund investor assets were posted to Refco as clearing prime broker and prime broker.
Then, late, last year, there was AlphaMetrix. AlphaMetrix was a platform which offered all the benefits which managed account providers claim for their product: thorough due diligence, transparency, state of the art technology, asset segregation and so on. The immediate victims, it seems, were managers rather than investors.
Here are some of the key findings from a webinar held by COOConnect’s on these issues:
• Closed managed accounts are a significant allocator, be that of large funds of funds or pensions funds. The closed platforms have more assets than the open ones and a sizeable number of pension funds are moving towards managed accounts in the EU and US.
• Individual managed accounts can be as safe as closed managed accounts, as long as they are set up correctly. Contractual separation from other vehicles is paramount.
• Keep your definition of managed accounts fairly tight to platforms, sticking to the institutional type model. You have got the fastest growing sector from an infrastructure perspective, home to more of a third of all the assets in the business.
• If the concept is going to be supported it needs scale, which means the support of the service providers.
• You can get better returns depending on how you structure your managed account platform. You have to have a robust organisation and have negotiation with your clearing prime brokers to make sure they understand what you are doing - it requires a lot more talking to one another.
• It is essential to keep an eye on operations at managed accounts and these are no different to any other investment in that you still have to follow the money.
• People have to move away from the idea that using managed accounts is a substitute for due diligence. It is not a significant corner cut. You still have to conduct due diligence on everything. Doing due diligence is as important as it ever was and there is no excuse.
• Managed accounts are not defined by a regulator. Users need to ensure that they have the definitions according to what you want and you max that out with either an internal bespoke design or an external hybrid platform. The solution to the safety of the managed accounts platform is the introduction of the depository regime in to the managed account platforms under AIFMD.