Today’s financial era has brought out the importance of the role of managed account platforms in the alternative investment industry. Investors’ key decision criteria, transparency, risk control and liquidity, are the order of the day, and Lyxor’s managed account platform has succeeded in responding to this.
Clients appreciate the diversity and breadth of the Lyxor investment universe in terms of strategies and styles. We aim to be representative of the wider hedge fund universe and our managed account platform is the largest in the industry by all metrics. This, combined with our weekly liquidity feature, allows clients easily to use our platform for the totality of their liquid-bucket hedge fund investing.
Lyxor has selected highly talented managers in long/short equity, event-driven, CTA, global macro and fixed-income strategies, and we saw more than USD5bn in inflows in 2009, with particular interest in event-driven funds. Lyxor’s platform is a scalable business that leverages off the industrialisation of our infrastructure.
With investors demanding greater risk transparency, the role of managed account platforms is gaining traction. The strong performance of alternative investment managers before 2008 contrasted sharply with that year’s returns as financial turbulence affected the sector. Now investors are increasingly concerned about risk of fraud and lack of liquidity, and investment security is a key demand. Investors want to be able to understand and control the risk – without it affecting asset performance.
Managed accounts offer investors the benefits they are now seeking, which include segregation of assets, independent valuation, independent risk management, enhanced transparency and reporting, and enhanced liquidity. Transparency and liquidity help clients better manage their funds by minimising overlaps, by adjusting their sensitivity to risk factors, and by optimising timing of entry and exit. Put simply, investors can make an informed decision about their allocation using transparency.
It should be noted that almost any strategy except the most illiquid are replicable in a managed account format, in part due to technological advances at prime brokers. However, managed accounts are bringing new tools to ‘traditional’ funds of hedge funds, which can now use transparency to optimise asset allocation and better manage risks. Gone are the days of once-a-month portfolio adjustment. They are also moving toward a multi-platform model for managed account investing.
Finally, the myth that managed account platforms do not attract the best managers has been definitively debunked. Interest in managed accounts has increased from investors and hedge fund managers alike. Since 2009 Lyxor has added names such as Tudor, Marathon and Caxton to our platform of best-in-class managers.
The recent success of managed accounts represents a structural change in the industry. An investor’s decision to pursue hedge fund investing via managed accounts is a strategic one, in most cases approved by the board. This strategic decision will serve as a catalyst for institutions to increase their hedge fund allocations going forward.
Ronald Oman is head of external relations for the managed account platform at Lyxor Asset Management