APAC: Managed Accounts and Conflicts – An Overview

Mar 07 2023

Over the last 20 years, managed accounts have become increasingly popular. A managed account is a portfolio of securities managed by a single manager on behalf of a single investor. These special arrangements are especially popular among institutional investor seeking:

More control over investment decisions (positive or negative control; veto rights);
Access to institutional quality investment managers;
Direct ownership of underlying assets;
Better fee terms;
Longer investment horizons; and
Other considerations, such as Sharia compliance, special portfolio “tilts” such as ESG.

In the context of a hedge fund manager managing a managed account alongside a hedge fund, a managed account may take the form of a fund-of-one, commingled managed account on a platform, or a dedicated managed account on a platform. In the hedge fund context, a fund-of-one is an investment structure set up by the sponsor (typically, the manager itself) to manage investment assets pari passu with reference to an existing hedge fund managed by the sponsor. The primary purpose of the separate investment structure is to segregate assets of the fund-of-one from assets of the reference hedge fund, thereby gaining greater transparency, customized investment guidelines and governance, and typically, lower management fees. The sponsor manager’s sole responsibility is to manage the asset of the fund-of-one, the operational aspects being delegated to service providers agreed with the investor, such as a custodial bank and one or more prime brokers.

A managed account operates in a manner similar to the fund-of-one, but more often than not, a separate investment vehicle is not established to manage the assets of the investor. Rather, the investor will select a host custodian bank, often with input from the sponsor, but more often than not, the investor will use a custodian with which it has an existing relationship.

This series of posts will examine the particular challenges posed to managers when managing a managed account alongside a hedge fund, in particular, conflicts of interest that often arise when a manager is managing a client account that implements or overlaps with a material number of securities held by the hedge fund. Along the way, we’ll suggest best practices to manage these conflicts. More to come, watch for our next post.

Please feel free to contact any of us to get started with managed accounts:

Hong Kong

Anson Chan | P: +852 2230 3554 | E: anson.chan@klgates.com

Choo Lye Tan | P: +852 2230 3528 | E: choolye.tan@klgates.com

Scott Peterman, CFA | P: +852 2230 3598 | E: scott.peterman@klgates.com

Sook Young Yeu | P: +852 2230 3591 | E: sook.yeu@klgates.com

Singapore

Ed Bennett | P: +65 6507 8109 | E: edward.bennett@klgates.com

Taiwan

Billy Chen | P: +886 2 2326 5171 | E: billy.chen@klgates.com

Cheryl Hsieh | P: +886 2 2326 5173 | E: cheryl.hsieh@klgates.com

Tokyo