Interconti’s Tim Merryman (aka Yoda) passed along the following BNY/Pershing study on individually managed accounts (they call them separately managed accounts [SMAs]) yesterday….

The study (excerpt below) finds that SMAs are gaining traction in the hedge fund industry, with hedge funds hesitant to provide them but investors demanding them because of the transparency and liquidity they offer.

Investors and hedge fund managers both viewed SMAs as an effective tool for meeting increased demands for transparency, liquidity and influence on the investment philosophy. However, gaps exist between investor demand and the willingness of hedge fund managers to offer SMAs.

Read the full piece here: Transparency and Liquidity_Managed Account

For us in the managed futures industry who have been dealing with individually managed accounts for decades;  the collective comment is likely something along the lines of  “it’s about time” or “welcome to the club”.

Our question is whether hedge funds can meet investor demand for individually managed accounts even if they wanted to.  With the leverage they employ, off exchange transactions,  and frequent need for a large pool of money (i.e. you likely can’t ask Goldman Sachs to create a short trade on mortgage backed securities for just $1,000,000; or buy a significant stake in a growing company for less than $100s of millions), the likely scenario is that separately managed accounts will only be available to the largest of hedge fund investors ($50MM to $250 MM minimums).  And who would the counterparty be for some large bet, the investor or the fund?

All of this tells me that the affluent mom & pop investor (an oxymoron?) with up to $5mm will be unable to access SMAs for hedge funds, and this is mainly a discussion reserved for the largest of pension funds and family offices.

The managed futures space, meanwhile, was practically built for this type of thing, with large and capable futures clearing merchants providing real time transparency into positions, the trading of exchange traded futures allowing for daily liquidity, and the leverage built into futures contracts allowing for smaller minimum investment levels (where an individually managed account can actually make sense for…. an individual).

For more on Tim Merryman and Interconti, visit https://www.intercontilimited.com/