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Comment: How to service managed account platforms

Arnaud Hurtard, Business Development Manager at CACEIS, outlines the ways in which managed account platforms are serviced.

Investing in hedge funds through managed accounts reduces operational risk and the risk of fraud or manipulation, which are behind over 50 % of hedge fund failures. Managed accounts create an interface between hedge fund and investor. A managed account is an investment fund controlled by the platform, which gives a hedge fund manager a mandate to replicate the performance of one of its hedge funds.

The fund manager's goal is to replicate the performance of the benchmark fund using the investment strategy and style for which it has been selected after a full and detailed due diligence process.

The platform monitors risk on a daily basis and ensures that the manager applies the selected strategy in compliance with the pre-set invest-ment rules and risk limits. The other advantage of managed accounts platforms is that they provide investors with liquidity, usually weekly, by allowing purchases and redemptions to be made within the week with no notice or for a very short investment period.

The due diligence process used to analyze and assess a fund management company's overall processes is long and costly and heavy investment in information technology is critical for strict risk monitoring. For it to be attractive and profitable, a platform must therefore be able to propose a diversified range of strategies preferably using several first-class names in the alternative investment world.

Independent valuation: As with classic investment funds, CACEIS is responsible for calculating official net asset values. For managed accounts in particular, the fund manager's positions have to be independently valued using a specific procedure geared to each type of instrument. CACEIS has a team of experts dedicated to valuing the most complex instruments. This service strengthens its ability to provide independent valuations of all kinds of instruments.

Middle office outsourcing: A platform may also decide to outsource certain middle office activities using the resources and expertise provided by CACEIS.

Thanks to the systems now linking CACEIS with the main prime brokers and the specific links created with fund managers and other intermediaries, particularly OTC counterparties, CACEIS can now provide a fully transparent and secure platform while facilitating risk monitoring by reporting daily on the transactions and positions taken by the various fund managers.

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