Comment added to: Managed Accounts: A Structured Approach
Comment From: Robert Macrae, Arcus Investment
August 24, 2009 - As I am sure managed accounts are currently under consideration by many medium and large scale investors, I think it is worth raising a problem that has to date prevented my company from offering them.
As noted in this article, managed accounts offer investors perceived advantages in transparency and liquidity. In finance, free lunches are rare, so we should ask how these advantages arise and who pays the price? If liquidity is greater than that offered in hedge funds managed by the same manager, investors in the hedge funds are being disadvantaged as the managed accounts are in a position to trade first.
I have heard investors say that they do not intend to use the greater liquidity, but of course if it is never used it is of no practical value at all. A similar argument applies to transparency. If the manager declines to reveal the details of investments because he thinks it is in the interest of investors not to do so, should he compromise this decision for only favored managed account clients?
As with liquidity, I think regulators are right to be concerned about selective transparency having the potential to disadvantage less-favored clients. In the light of these problems, it will be interesting to see the extent to which managed accounts actually take off. There is no doubting their appeal to investors, but if they require managers to compromise on service to their hedge funds, I think they will remain a peripheral part of the industry.
