Intelligent Speculator

They are the new “in” thing in the world of high net worth individuals. Those that used to ask hedge fund managers to take their funds are now heading to a new safer and more transparent alternative; managed accounts.

What are they? It’s actually quite simple. Imagine you opened an account and did a deposit for 100K$. Then, you simply asked a fund manager to manage those funds. That is exactly what a managed account is.

The main advantage is transparency because you do see every transaction that goes through, there is no question about what is happening, how much it is worth, etc.

Also, when you think about the Madoff fraud, chances are very very high that no such scheme could have worked with managed accounts. Another advantage is that the investor holds the ultimate power and can at any point change what is happening in the account. Of course, the portfolio manager will probably stop his arrangement once that happens but it is still good reassurance. It is not quite clear how managers will react to this new tendancy, it does complicate things a little for them. But with set rules, managed accounts can actually provide a very good alternative for investors and in that regard, if managers can get more funds by going through such alternatives, they will probably go for it.

What about the fees? Generally, the fees are fairly similar to those that can be found under traditional hedge fund structures, generally similar to 1-20%, that is an annual 1% fee on the assets under management as well as 20% of the performance beyond an agreed minimum, generally the interests that could be earned if the assets were invested in money market…

Will traditional hedge funds disapear? Of course not. Many funds, especially those trading OTC trades would probably not be suitable or even possible. Because of this, managed accounts will have a limited potential. But given how small they currently are, it seems likely that managed accounts will have high growth for many years to come… By some estimates, managed accounts will grow at a 35% rate reaching $327 billions..  Because this type of account is fairly new, the race to see which broker and investment company will offer the more advanced, sophisticated and pratical solution is still very much up for grabs, we will be hearing about managed accounts a whole lot more in the coming years, that is one thing for certain.