Managed Accounts-Transparency at a High Price? Nonsense.
March 11, 2010
The editor of this wonderful new online site entitled an article yesterday, Managed Accounts: Transparency at a High Price. A comment like that could only have been made by a firm or firms that does not provide managed accounts but feel the pressure from investors to provide them. Quoting the recently published Prequin Research Report, it was quite evident that many of the hedge fund respondents fell into this category.
Let’s look at it this way. If you were invested in a managed account during 2008 and early 2009 when markets went into extreme turmoil, your demand for liquidity was met in a timely fashion saving you a lot of money. Furthermore, it was unlikely that your assets became embroiled in Madoffian-like fraud, that they were exposed to Bear Stearns or Lehman liquidity/bankruptcy issues and you sidestepped toxic paper-induced valuation issues. Being free of these costly events certainly seems to me a price any investor would be more than happy to pay.
One of the greatest values to investors of managed accounts seldom gets any airplay at all. Investors who utilize a regime of managed accounts offering weekly or monthly liquidity representing many different hedge fund styles are given a whole new alpha generation tool. They can effectively manage the beta of their hedge fund bets by up weighting and down weighting different styles in their portfolio as economic conditions change. Take 2008 for example. This was the year to have a large exposure to CTAs and low or no exposure to convertible arbitrage. The exact opposite was the case in 2009.
Some nimble managed account providers very effectively used this tool in their funds of funds to add a lot of value for their investors. Traditional funds of funds were down an average of 20% in 2008. Funds of funds offered by managed account providers had a decidedly more sanguine experience with many reporting returns of -5% or better.
So going back to my original premise, when one reads surveys on prickly issues like managed accounts, you always have to be aware of the people who are answering the questions and the biases they harbour.