HedgeMark, a BNY Mellon Company, is regarded as a pure play dedicated managed account provider, in that HedgeMark assists clients in setting up and operating their own private managed account platforms.
The HedgeMark DMA model, explains HedgeMark CEO Andrew Lapkin (pictured), is to empower the investor to select the managers that it wants on its DMA platform. "The fund selection and due diligence functions are performed by the investor or its advisor and we then coordinate the onboarding of the manager including coordinating the process of negotiation of the investment management, Prime Broker, FCM and ISDA counterparty agreements and continue this support through the life of the fund."
2016 was another positive period of growth for the platform: In the 12 months ending 31st December, 2016, HedgeMark's assets increased by 6.8% from USD8.8 billion to USD9.4 billion. Most of HedgeMark's growth was in full DMA service assets, which increased by USD2.4 billion to USD5.8 billion in total; a 70% increase from December 2015.
HedgeMark currently services over 60 private funds. Overall growth for the platform was offset slightly by declines in UCITS and '40 Act mutual fund assets (in respect of which HedgeMark provides a subset of its services), which currently total USD3.6 billion.
The focus on fees, fund expenses and transparency are three key aspects to why investors are embracing the use of dedicated managed accounts. Institutional investors recognise that managed accounts are an effective way to address the first two aspects and the enhanced transparency can help them build more effective portfolios of investment managers.
"Our DMA business continues to grow because of these continued industry pressures faced by hedge fund managers, and a desire among investors to improve the overall structure of their hedge fund investments," adds Joshua Kestler, HedgeMark's President and COO.
A lot of press coverage recently has focused on institutions exiting hedge funds but the devil is in the detail; a number of investors are continuing to invest in hedge funds but via managed account structures. "We've spent a lot of time educating investors on the benefits of managed accounts; indeed, we've been doing this since HedgeMark's inception and we are seeing a move among a number of the large investors to use dedicated managed accounts as the primary, or only way, to invest in hedge funds," says Lapkin.
He adds that for large allocators in particular, managed accounts give them the opportunity to negotiate fees and expenses that they are more comfortable with.
There are a couple of reasons for this. Firstly, the DMA is outside of the manager's main fund and this gives the manager greater flexibility to reduce or customise fees (for example, no management fee and a higher performance fee).
Secondly, the HedgeMark model provides the investor with another argument for why fees should be reduced. HedgeMark is responsible for many of the non-investment functions of the fund, minimising a manager's responsibilities, potentially reducing both cost and risk on the manager's side.
"Ultimately, when you have your own DMA you control your own destiny," says Kestler. "The only limitation is the liquidity of the underlying assets. We believe that in the future this will become the best-in-class way of accessing the hedge fund asset class.
