Managed-account platforms serve the needs of investors who want to create their own fund-of-funds portfolio, and also act as a distribution mechanism for fund managers to connect to advisors and their customers.
“Managed-account platform provide services both to investors and to managers,” David Young, president of Gemini Alternative Funds, told Markets Media. “From an investor’s perspective, they provide liquidity, transparency, reporting metrics, cash efficiency. From a manager’s perspective, they provide an operational hub and help the manager in distribution.”
Investment advisors can receive a flow of information to be able to track their customers’ investments. “They receive that on a daily basis, in regards to what’s happening with your investment, the performance and exposure that you have as an end investor,” said Young. “In addition, investors can come directly to the platform itself, and gain access to the underlying strategies as long as they are qualified investors.”
Investors are demanding liquidity, transparency, cash control and operational independence, and often don’t want to be locked into a relationship with a single manager. By providing access to multiple managers, managed account platforms like Gemini turn alternative asset investing into something akin to mutual fund investing, according to Young.
"Liquid alternatives are growing fast, and this trend may likely continue for at least the next few years," he said. "RIAs need to know how to best deliver these strategies to their clients, and managed account platforms provide a solution by offering liquid, transparent, stable and comprehensive exposure as well as operational independence."
An investor might have multiple managers that they want to commingle in one fund. “We build that fund and provide all the services around that, such as notional funding, frequent of liquidity, , and transparency of information on the underlying holdings of the managers they have invested with,” Young said.
It’s expensive for a fund manager to provide more frequent liquidity, to provide these services directly. “It’s an expense that would be incurred by the manager in regards to the structure and the operations to support that, and that’s something that we’re able to absorb,” Young said.
After the financial crisis, many advisors sought to take greater control of client portfolios, which accelerated the growth of advisor-driven managed accounts, according to Cerulli Associates.
The role of advisors in the portfolio construction process is a topic of ongoing debate," said Scott Smith, director at Cerulli, in a release. "The skills required to manage client relationships are distinct from those needed to successfully run portfolios."
Cerulli research indicates that advisors typically spend 20% of their time on investment management duties, including due diligence, research, and trading. “Reducing the time advisors need to spend managing client portfolios allows more time for client-facing activities, such as prospecting and meeting new clients, which are highly correlated to increased revenues from additional asset gathering,” Smith said.
Gemini recently hosted a panel discussion about how managed account platforms help investors seeking access to alternative investment strategies. Topics included selecting managed account platforms; why they are helpful to fund managers, financial advisors and investors; how managed account platforms affect alternative investment swaps structure, mechanics and trade execution; and differences in structuring requirements for liquid alternative funds in the U.S. and Europe.
"We are committed to educating the wealth management and investment communities at large about liquid alternatives and managed account platforms," said Young. "We will continue to pursue opportunities to help advisors and investors better understand liquid alternative strategies and the role managed account platforms can play in obtaining exposure to those strategies."