Earlier this year, Man Investments, the world’s largest hedge funds of funds manager, based in Switzerland, announced that it was migrating to a separately managed account platform (SMAP) for clients in order to give them more transparency and control. Others are expected to follow. Providing an SMAP for a client, even a big one, is not an easy thing for a hedge fund management firm to do. Most hedge fund managers are boutique operators, with outsourced administration. It is difficult enough for a boutique to provide separately managed accounts in the long-only space.

With shorting and sophisticated arbitrage strategies across a range of asset classes, the task is that much more difficult. But if investors want it, invariably they will get it. Rupert Lea, the managing partner of UK-based SMAP provider MAG Consultancy, says that every trade has some sort of underlying value that can be attributed, but the client should have an independent firm monitoring the overall situation. In MAG Consultancy’s contracts, it is clearly laid out how much of the underlying investments that the client sees. “They typically want mainly to see beta.

And what is the overall correlation of the investments?” MAG Consultancy is a partnership between two UK-based firms – IGS Group and MSS Capital – formed in 2001, initially to work on the formation of a FTSE hedge fund index. Over the past eight years it has developed into a major builder of SMAPs and provider of a range of services to both hedge fund managers and investors. This year it opened an office in Melbourne, run by Peter O’Neil Donnellon, to provide SMAP services to the Australian hedge fund market.

He says that the firm’s services are broadly split between consultancy and construction, applied flexibly to the client’s needs based on an initial GAP analysis. The services are, typically, either ‘transparency services’, custom SMA and allocation services, or customised SMAP to the client’s specifications. With the transparency services, the investor will select its own investments and conduct due diligence in-house.

MAG provides risk monitoring and reporting. With SMA and allocation services, MAG will set up an SMA with operation and governance as required. MAG will also provide legal and compliance, risk management and reporting, as well as due diligence. With the customised SMAP, MAG enters a partnership with the client for the complete design, construction and delivery of a branded SMAP.

O’Neill Donnellon says: “Bernie Madoff could never have taken a managed account and did what he did. With our system, there is not one day that goes by that a trade is not settled. The assets are the client’s.” He says that most SMAs in the hedge fund space have been built by investment banks to launch their structured products. These are not necessarily in the best interest of clients.

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