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HedgeMark: Best Managed Accounts Platform

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The pandemic has proved a busy period for BNY Mellon’s HedgeMark, the winner of this year’s Best Managed Accounts Platform award, with 2020 and 2021 being two of its most active years for its managed client accounts. 

Joshua Kestler, Global Head of HedgeMark, comments: “At the outset of the pandemic, allocators faced challenges putting capital to work given the inability to visit managers onsite. The protections associated with managed account structures, including control, improved governance and transparency, helped many of our clients overcome these challenges. The flexible and customised nature of managed account structures helped clients rapidly deploy capital to take advantage of unique market opportunities, such as co-investments and SPACs.” 

Several key trends have dominated the past 18 months which have driven client adoption of managed accounts and related growth in HedgeMark’s business.

Risk Mitigating Strategies (RMS) portfolios are intended to hedge or offset the significant equity risk in pension plan portfolios and are intended to generate positive returns when equities decline. RMS programmes generally utilise three strategy components, which include long treasury duration, trend following/capture and alternative risk premia. 

“The customisation, control and transparency afforded by managed account structures, along with the ability to rebalance the portfolio intra-month, make such structures ideal for implementing an RMS programme. The initial wave of RMS allocators performed very well during some of the pandemic-related market volatility, and this success has driven a second wave of allocators implementing RMS programmes,” Kestler says.

Allocators are increasingly focusing on counterparty exposure and single-name risk. Concerns relating to counterparty losses, associated with Archegos and the volatility around internet meme stocks, such as AMC and GameStop, have driven investors to increase their focus on these specific areas of risk. 

Managing risk

Managed account allocators have a significant advantage in terms of understanding and managing this risk as the transparency afforded by the managed account structure allows them to monitor counterparty and single-name exposure on a daily basis. HedgeMark has therefore developed dashboards for counterparty monitoring, as well as single name monitoring, including crowded shorts, unusual volume and highly active stocks.

Allocators are also monitoring their portfolios for ESG scoring and other related analytics, with managed account structures being the ideal way to implement a portfolio requiring ESG monitoring, given the ability to customise the investment strategy and apply specific investment guidelines, and the availability of daily transparency and related tools. 

Kestler also identifies co-investments as a major trend. “Many allocators see an opportunity to extract unique or additional alpha by working with managers on overflow ideas and co-investments. Clients have used managed account structures to access co-investment opportunities in order to quickly deploy capital to these investments and maintain asset control.”

To meet these trends, Kestler says that clients are looking to outsource the non-investment functions associated with building and operating a dedicated managed account platform, including platform structuring, fund formation, document negotiation, operations and accounting services, service provider oversight, plus risk and guideline monitoring and other analytics.

“The resources required to operate a Dedicated Managed Account (DMA) platform are specialised and significant,” Kestler says. “HedgeMark has the staff, processes, technology, and scale to deliver platform services to our clients in an efficient and cost-effective manner which alleviates the constraints of client resource capacity and the need for clients to absorb significant fixed costs associated with their platforms.” 

Joshua Kestler, Global Head, HedgeMark
Joshua Kestler is responsible for overall management of the business, including development and implementation of business strategy. Kestler has more than 20 years of experience in the hedge fund industry. Prior experience includes Head of Managed Account Platform Operations for Deutsche Bank’s X-Markets Hedge Fund Platform in the US and CAO of DB Advisors Hedge Fund Group. Kestler was also an associate at Schulte Roth & Zabel LLP. Kestler received a JD, cum laude, from the University of Pennsylvania Law School and a BA, summa cum laude, from Rutgers College.

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