Investors find comfort in hedge fund investment through managed account platform

Market turmoil has proved challenging for hedge fund performance. Lyxor has seen a huge dispersion in performance between strategies and between managers on its platform. At the same time the managed account platform Lyxor runs has become increasingly attractive to investors who have either already been invested in hedge funds and want a more risk controlled environment or for first time investors who see a platform as a cost effective and simpler way to make direct allocations to strategies.

Lionel Paquin, managing director, head of the managed accounts platform at Lyxor Asset Management, believes the platform has an edge. Its wide range of strategies and managers, coupled with a robust selection and responsiveness to trends, new launches and new investors.

He is optimistic there will be continued appetite for managed accounts because they provide a framework for investors to meet their specific requirements in terms of risk management.

Since 2008 Lyxor has seen a growth in the number of hedge fund managers looking to enter the platform. Its popularity, says Paquin, is down to the fact that Lyxor offers managers a “long-term partnership and access to investors who are the most demanding in terms of risk management, operational security and transparency.”

Its 13-year track record coupled with its open architecture model for service providers is attractive for managers keen to keep existing relationships but also looking for a respected and trusted partner to expand their fund offering. Managers, says Paquin, like managed accounts for the same reasons as investors.

But with such volatility in the markets, two important factors remain for managed accounts in 2012, says Paquin: size and risk management. “Investors will need to know their risks and their exposures are protected from any possible default or failure of the counterparty or the service provider.”

While Europe is Lyxor’s “fortress”, it has had significant growth in Asia. It has one analyst based in Hong Kong dedicated to Asia and sourcing new fund managers based there. In 2011 it added four Asian-based funds to the platform.

“There is some demand for Asian-based hedge fund managers,” says Paquin. “There’s been a definite emerging world thematic among certain managers and investors and that’s the reason why we are adding emerging managers of several strategies. We really trust that investors will continue to look out for such managers.”

Lyxor has also had discussions with large, US institutions. It plans to continue its global expansion next year and to significantly raise its profile in the US.

At its most basic, however, the platform’s strength resides with the quality of the managers and strategies operating on it. Manager selection comes down to “ability to perform over several different market cycles, consistence with investor appetite, comprehensiveness of our offering, sound infrastructure and risk management processes and impeccable reputation”, explains Paquin. This criteria is in line with investor expectations.

Significantly, Lyxor added two multi-strategy funds to its platform in 2012, something that many thought would be difficult in a managed account format. This increased the platform’s range and diversification as well as reacting to investor requests for access to such strategies.

Additionally, Lyxor wants managers to be able to explain their performance and their processes coherently and in detail to prospective investors as well as to Lyxor.

Paquin believes the impact of future regulations, such as the European Union’s alternative investment fund managers (AIFM) directives, should be good news for Lyxor. “If you think about our role in the industry when setting up managed accounts we act as a private regulator,” he says.

“We provide investors with reporting, enforce risk guidelines, segregate assets, create independence, implement independent valuation processes, independent cash management and monitor counterparties,” adds Paquin.

Paquin believes Lyxor offers what fund of hedge fund managers as well as institutional investors are looking for. “In addition, our investors need information, need responsiveness and liquidity more than ever.” Paquin says that is what investors will expect from a managed account in 2012.

Managed account platform from hedge fund/FoHF viewpoint
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