More than half of emerging hedge fund managers are dissatisfied with available technology for raising capital, and the majority have started using managed accounts, according to a survey from broker-dealer I.A Englander’s Managed Accounts and Prime Services division (MA&PS).
The survey polled hedge funds with less than $500 million AUM and consisted mostly of U.S. managers, but also some from Canada and Western Europe. When asked what services attracted managers to prime brokers, 35% said that technology/reporting was the most important, while 30% favored operations coverage/competency, and 25% looked the most at execution rates.
Additionally, the survey found that 55% of respondents did not think their prime broker offered appropriate technology for raising capital. Part of the problem, says Brett Langbert, managing director of sales and distribution, MA&PS, is that vendor solutions can be too costly for emerging managers, while prime brokerage solutions tend to be fee-based without technology embedded as part of their platform.
One growing trend has been the offering of managed accounts. 75% of survey respondents said they use managed accounts, and 55% say their firms have benefitted from this model.
“Managed accounts are obviously growing in proliferation and importance, especially for allocators to get comfortable investing in emerging managers,” says Langbert. “And I think every prime brokerage offering is addressing that, it’s just addressing that perhaps in different ways.”
For those who are not using managed accounts, 43% of managers said that relinquishing transparency to investors was the main reason they have not made the switch.
However, Langbert thinks that this transparency control is changing. “The pendulum has shifted towards the allocator…managed accounts is a way an allocator feels more comfortable investing with or alongside an emerging manager.”
“In the post-‘08 world it’s a combination of protection features and the trend of transparency continuing to grow in the business,” he adds.
The survey also found that half of the firms who use managed accounts have not seen a loss in scale of its trading strategies or counterparty relationships, but 10% have run into this problem.
And while using multiple prime brokers has been popular since the crisis, this model is perhaps less popular for emerging managers, as only one-third said they used a multi-prime structure.
Managed Accounts on the Rise for Emerging Fund Managers
More than half of emerging hedge fund managers are dissatisfied with available technology for raising capital, and the majority have started using managed accounts, according to a survey from broker-dealer I.A Englander’s Managed Accounts and Prime Services division (MA&PS).