"The move to Managed Account Platforms" - The brand new Global Perspectives White Paper A growing trend in the Hedge Fund & Asset Management industry over the last few years has been the rise of Managed Account Platforms as a new investment structure. We will look at why this part of the Hedge Fund industry is growing rapidly and also examines the challenges that exist for Managers and Platforms working within this type of structure. Sign up for all our monthly White Papers at- http://www.globalperspective.co.uk/#!white-papers Or email: - shane@globalperspective.co.uk

1. A Global Perspectives White Paper
The move to Managed
Account Platforms
By Shane Brett,
Managing Director
Global Perspectives
www.globalperspective.co.uk
th
Date 6 December 2012

2. Contents
Introduction
Introduction 2
A growing trend in the Hedge Fund & Asset
Opportunities 3
Management industry over the last few
Challenges 3
years has been the rise of Managed
Account Platforms as a new investment
Conclusion 5 structure.
This industry segment has existed for some
time and has to date been dominated by
one established giant – Lyxor. This is
starting to change as increased competition
enters the sector from fast growing
competitors like UBS’s Liquid Alpha
Platform.
These Managed Account Platforms sign up
traditional and Hedge Fund Managers who
then market their funds to institutional
investors worldwide.
The catch for Managers is that the
Platforms impose much tighter investment
controls around trading, investment
allocation and risk management.
We will look at why this part of the Hedge
Fund industry is growing rapidly and also
examines the challenges that exist for
Managers and Platforms working within this
type of structure.

3. Opportunities Instead they pay this fee to gain an extra
level of comfort. After the Madoff debacle
Managed Accounts are capitalizing who can blame them.
on a major trend in the Hedge Fund
Institutional Investors are insisting on a high
industry - the push towards
degree of flexibility, transparency and
increased checks and controls. The
liquidity. The extra reporting and controls
on-going regulatory avalanche
provided by these Platforms addresses
across the whole industry has
these concerns. Investors can easily
obviously contributed towards this,
redeem their assets (on an often daily
but in fact the main driver has been
basis) and are better protected from fraud or
Investors themselves.
manager error (due to the Platform’s
Investors want to see their internal additional layer of operational
investment managed carefully and in checks).
a fully controlled environment. They
want to ensure Fund Managers are
not taking unnecessary risks or
Challenges
engaging in dangerous trading
activity. This can be especially
There are a number of important factors to
important for investors into
consider for Hedge Fund Managers
alternative funds or those exhibiting
considering joining a Managed Account
a similar investment objective (for
Platform. In many ways some of these
example “Newcits” in Europe).
issues may limit the growth of this structure
It is even more important for in the years ahead.
Institutional Investors. As they
The first obvious challenge for many
already represent a very large and
managers is that they do not like being kept
growing segment of the whole
on such a short leash. We have seen
industry, it is likely that the trend
examples of managers’ keen to sign up to a
toward Managed Account Platforms
Managed Account structure but who have
will continue. In many cases
balked when they realize the scale on
Investors can actually access the
controls that will be placed upon them.
underlying funds themselves without
having to pay the Platform fee.
Global Perspectives
www.globalperspective.co.uk
Email: Shane@globalperspective.co.uk
Phone: +44 (0) 20 3239 2843

4. Managers recognize that these Managers who breach their agreed
Platforms are a potential new investment guidelines will have to
revenue stream, in a market that has compensate the fund. This means they will
been tight on new investor have to directly write a cheque from their
allocation. Of course the investment own company resources to make good the
limits will vary from Platform to shareholders of the mutual or hedge fund.
Platform but they will likely place firm This represents a potential challenge for
limitations on the managers’ ability Platform Managers. It will be up to them to
to use leverage, gain exposure to chase the Fund Managers for compensation
specific derivatives or illiquid and this will likely involve tense negotiations
securities and engage in OTC to determine the exact monetary size of the
Counterparty Trading. breach.
In many ways joining a Managed Fund Managers will be expected to sign off
Accounts Platform is akin to running and assume liability for their valuations.
a regulated Mutual or UCITS fund. It Hedge Fund Managers will validate their
certainly won’t be for every Fund NAV’s from their Administrator as
manager. normal but the big difference here is that the
liability for having the NAV right will lie not
Many managers (particularly US
just with the Administrator as before – it will
Hedge Fund Managers) will not have
also lie with the Fund Manager as well.
Pre-Trade Compliance checks in
place to ensure trading activity does This is because on a Managed Accounts
not breach their investment levels Platform the Manager will review the NAV
prior to placing the trades in a the sent to them by the Administrator (as will
market. This would be a big change the Platforms operational team) and sign it
for some Managers. Before joining a off. The NAV may be calculated perfectly
Platform they will have to make a correctly by the Administrator but if the Fund
sizable IT investment and also Manager signs off a Fund NAV which
change many of their internal breaches their agreed Platform risk and
operations to anticipate the effects of compliance limits, then they are writing a
their investment activity cheque. It’s that simple.
Global Perspectives
www.globalperspective.co.uk
Email: Shane@globalperspective.co.uk
Phone: +44 (0) 20 3239 2843

5. Finally existing managers will have investment. This trend is where Managed
their own internal Pricing Policy Account Platforms can prosper.
which they will have used for their
These Platforms provide an extra level of
investments. This will likely have
controls on the Fund. They can also provide
been agreed with their
increased reporting and flexible liquidity.
Administrators over a period of time
They can effectively supervise the Fund
and cover the acceptable price
Managers actions and investments closely,
sources for a full range of standard
in a way not possible in a traditional Fund
and exotic financial instruments. It
Manager - Administrator relationship.
will also have been reviewed and
approved by the Fund’s Board. While this structure won’t be for every
Manager, the access to new capital
In a Platform structure the Fund
allocation as well as the on-going demand
Manager will be expected to throw
from investors should mean a bright future
their Pricing Policy in the bin,
for Managed Account Platforms.
Instead they must adopt the
Platform’s Pricing Policy in full.
Understandably this can be a
significant change for many Order the brand new book-
Managers and the nature of the
Platform structure means there is “The Future of Hedge Funds”
little room for negotiation – if you
By Shane Brett
want to join the Platform you have to
The last 2 decades have transformed the
sign up to its Pricing Policy.
Hedge Fund industry from a niche
investment segment to a massive global
industry.
Conclusion
In this excellent and wide-ranging study
of the Hedge Fund industry, Shane Brett
examines the main issues and trends
Given the recent economic currently taking place, and analyses how
environment and a new emphasis on they will affect the future of the industry.
due diligence prior to allocation, it is This includes-
natural that investors are looking for
• Changing investor demands across the
increased controls on their industry,
allocations over the life of the
Global Perspectives
www.globalperspective.co.uk
Email: Shane@globalperspective.co.uk
Phone: +44 (0) 20 3239 2843

6. • New regulatory requirements - Shane Brett is an expert in Hedge Funds,
including FATCA, AIFMD & the Asset Management and the wider global
JOBS Act, economy.
• Future operational trends - He is the founder of Global Perspectives,
including Operational Due Diligence the Asset Management & Hedge Fund
& Managed Account Platforms, Consultancy.
• Emerging Service Provider
opportunities – including Hedge
Fund Administrators,
• Hedge Fund investment strategy
- including new emerging
investment opportunities,
• Best practice change
Sign up for all our monthly
management – how to manage
Hedge Fund industry change. White Papers at-
The “Future of Hedge Funds” also http://www.globalperspective.co.uk/#!white-
examines the current and future papers
global economic environment and
what this will mean for Hedge Or email: - shane@globalperspective.co.uk
Funds in the years ahead.
Available from Amazon in
paperback here-
www.amazon.com/Future-Hedge-
Funds-Trends-
industry/dp/1481130226/
And for Kindle here-
www.amazon.com/The-Future-
Hedge-Funds-
ebook/dp/B00AHACY8Y
Global Perspectives
www.globalperspective.co.uk
Email: Shane@globalperspective.co.uk
Phone: +44 (0) 20 3239 2843