Man Group expects more pension fund administrators as well as institutional investors to favour infrastructure managed accounts in future. Asian and US investment is also expected to grow.

Managed accounts have been used by Man since 1998 and have since formed a key part of the overall multi-manager offering for the company for some time.

The first portfolio that invested wholly in managed accounts was launched in 2002. Since then the percentage of assets invested has increased with approximately 60% of assets now invested in managed accounts across the multi-­manager business.

“Although we have a limited number of managed accounts that are direct access, the majority are via the managed accounts structure. This is the way that our business is focused,” explains Steve McGoohan, senior managed account analyst at Man Group.

He says the traditional multi-manager structure has as its primary aim to invest in external managers. Within the platform those same external managers are brought into the managed account platform structure to replicate their funds. Over time the percentage of assets under management on the platform has overtaken those within the direct multi-manager structure.

Manager selection is driven by the investment conviction of the multi-manager business, as opposed to the requests of external parties. The ability to invest in a manager through a managed account ensures Man has the necessary transparency and control to meet the needs of its investors.

“Single managers are only selected for inclusion after passing our intensive due diligence process which includes analysis of the manager’s ability to work within a managed account structure,” McGoohan says.

To meet Man’s own standards, funds must have good operational risk management procedures as well as a strategy that fits easily into a managed account structure.

“The Man fund selection choice is a well-trodden path and we are proud of it. There is also great emphasis placed on anticipating which sectors and strategies are likely to do well in the months ahead and adding extra ‘bandwidth’ where appropriate,” says McGoohan.

Managers exit the platform generally if the strategy ceases to fit with Man’s own investment objectives. Since inception there have been over 300 managers on the platform.

Worldwide clients
Man’s managed account platform has built up a diverse client base, with around a quarter of clients coming from Japan, followed by Switzerland, Germany and the Middle East. About 22% of investment inflows come from banks. Investment is also coming from pension funds, insurance companies, independent financial advisers, asset managers and endowment funds among others.

Minimum investment varies depending on the type of portfolio required. For example, Man Transparency has a minimum investment of $500,000. While the base currency for managed accounts is in US dollars, Man also offers products fully hedged into any currency.

The platform offers allocation to five different styles of managed account. There are 15 focused on global macro, 23 on equity hedge, 21 on managed futures, nine on event driven and eight on ­relative value.

Because Man has been operating in the alternative investment industry since 1983, it has built a network of relationships with mature hedge fund managers. It has turned this into a strategic advantage, creating systems and processes that give it the ability, according to Man, to filter vast amounts of information efficiently, allocate resources earlier to research projects and spend significantly less time researching and investigating sub-optimal managers than its ­competitors.

Man has also pioneered what it calls ‘infrastructure solutions’ where managed account structures are tailor-made to meet specific needs of large-ticket institutional investors.

“We’ve developed bespoke solutions for clients who partner with us because of our experience in establishing managed account structures as well as the quality of our risk monitoring process” McGoohan ­continues.

Man has created two ‘infrastructure’ managed accounts for pension fund administrators the Universities Superannuation Scheme (USS) ($1 billion AUM) and BVK ($1.5 billion AUM). These assets are not included within the overall total of the managed accounts business that stands currently at around $8.1 billion.

“We see this as a significant growth area in terms of assets under management. This area of the market will not be a volume-based proposition but more where a pension fund administrator’s assets have reached a level where it are able to command a structure suited specifically to its needs,” says McGoohan.

He cites the benefits as two-way. Man has also gained valuable experience in tweaking a managed account structure to specific needs and can thus develop its reputation and attractiveness to other potential clients within this sector.

Transparency and control
More generally platforms have the advantage of transparency and control. For example within the multi-manager managed account structure there is control over the jurisdiction, the service providers, the liquidity and generally a tighter control structure to ensure that the manager is trading in line with the mandate and the ­controls set.

“That allows us and our investors to make more informed and timely decisions. We can identify patterns of trading, how the fund manager adapts to various scenarios and the like. This would not be as easy within a direct investment environment where we would be reliant on the manager for all the data and patterns would be harder to identify. The transparency provided by ownership is significant,” says McGoohan.

Although common risk management controls and procedures are set, there are not as many restrictions when it comes to liquidity. This, believes McGoohan, is key feature of the Man offering.

This is interesting because generally platforms like to provide a uniform level of liquidity and see that as a key selling point with investors who might be nervy about redemption terms.

“Unlike some other companies, we do not restrict ourselves on liquidity,” notes McGoohan. “Although some funds and their underlying assets may be intrinsically less suited to the uniformity of a managed account model, we believe that the key lies in clear labelling and being truthful about what the actual liquidity is, rather than trying to apply uniform liquidity rules to very different accounts,” he says.

He adds that Man, in common with most managed account platform providers, does not apply gates or other restrictions. It believes that the key to proper liquidity relies heavily on providing proper and manageable expectations. “That means being truthful and realistic [with investors and managers],” he says.

The structure of the 70 or so managed accounts hosted is consistent. However, for this to work there is a need to keep standards and internal monitoring up to date. This makes for an attractive overall proposition, believes McGoohan.

“In the past two years we have spent significant amounts on adding additional transparency to our reporting capability. There is now access to daily data that can be aggregated and consolidated, pushed through various user metrics and then translated into meaningful data at the other side,” he says.

Having data independence is key to reporting capability and again this differentiates the platform from the direct multi-manager offering.

“We own the data and so can manipulate it more quickly and as we see fit. This differs from having a series of external data that might come in at different times and in different formats,” says McGoohan.

In-depth reporting on a more frequent basis is a direct response to investor demand across the industry wide. “The key lies in making the reporting relevant and adding value with it, not just throwing lots of meaningless random data at them to decipher for themselves,” he says.

Independence valued
The offering also maintains its independence when it comes to prime brokers, counterparties and other third-party service providers. The firm eschews formal affiliations with service providers and instead chooses the very best of breed according to the situation.

Accordingly, all service providers are subjected to careful monitoring. “We need to know that they have good procedures in place for operational controls, that they are always updating their technology, personnel policy and procedures,” says McGoohan.

“We have generally had good experiences with all our third-party service providers, counterparties and prime brokers. This is because we have worked with most of them over a long period of time and so we have all evolved together and they are able to provide a very good fit to our business model and its nuances,” he adds.

Another important factor especially in future is the group’s global reach. There is a dedicated research capability in Asia, the US and Europe. The risk management controls and investor service levels are also applied according to a ‘follow the sun’ ­mentality.

This is potentially important given that the geographic spread of investors is expected to broaden to include the US and Asia. However, thus far the US has not really jumped on board the managed account model. Indeed, larger investors have tended to go down the ‘fund of one’ route or to gain greater transparency by doing their own data aggregation, according to McGoohan.

“We think that managed accounts provide a better overall solution simply because as the structure provider actually owns the data so it is not reliant on anyone else. Growth in the US, although there, could be slow” he says.

Nevertheless, McGoohan is confident the future of the Man multi-manager proposition is assured and company is gearing to compete as a leading managed account platform provider that is also a cost-­effective one.

“Global reach and a broad business model mean that we are able to apply an economy of scale and this has a real effect on our pricing model, adding value at the investor end. We can always look to negotiate discounts and seek to drive costs down while maintaining cutting-edge operational and infrastructure excellence,” he says.

“Investors may forget 2008 and look to the cost element but by being a bigger player and thus having this economy of scale we hope to grow the business. The cost of investing via this model is more than offset by the advantages of liquidity, transparency and security,” he adds.

He also expects the competition for attracting both investors and managers will remain within a limited number of significant players. “Because of the inherent protective nature of this model then investors and managers alike will always look to the large more experienced houses that can provide better levels of comfort,” he says.