Allowing Investor Viewing Access to Brokerage Account
I have recently been talking with many hedge fund service providers about what they are seeing in the industry right now. The following quote aptly summarizes what I have been hearing:
it’s a buyer’s market and managers need to be mindful if they are going to attract investors
Accordingly, this article will discuss one way of increasing the transparency of a hedge fund structure in order to appeal to potential investors who want some sort of confirmation that their assets are safe and are actually being traded.
Increased Calls for Transparency/ Separately Managed Accounts
Post Maddoff transparency has become the gold standard of the hedge fund industry. I have talked with various groups, both managers and service providers, who are seeing this need for transparency and there are a couple of ways we are working to address these issues for both the benefit of the manager as well as the investor.
As we discussed in an earlier post, separately managed accounts (SMAs) are a viable option for some managers who want to provide a managed account platform to investors. There are some drawbacks to the SMA platform but they do accomplish the goal of increased transparency for the investor and SMAs are becoming more popular. There are noted disadvantages to the structure (see SMA Advantages and Disadvantages) so I have been talking with various groups to try to figure out a good solution which keeps a fund structure but also provides transparency for the investor.
Investor Viewing Access to Brokerage Account
Many hedge fund administration firms provide daily net asset valuation services to investors. Typically these firms receive fund’s feeds from the brokerage account and are then able to translate that to each fund investor. Administrators then allow investors to access their own account information through an online account with the administrator. While such programs allow the investor to see how their investment is doing, the information is still second hand – it would be better if investors could see directly at the brokerage account level what the fund’s performance was like.
After discussing this issue with a couple of brokerage firms, I was happy to find that some brokerage firms can provide this sort of access to hedge fund investors. Basically the fund manager would request various administrative privileges or IDs which allow an investor certain access to the fund information. These privileges can be customized so that the manager can allow the investor to see as much or as little information regarding the fund and its trades. Of course these administrative privileges would not provide trading access to the investors and these programs will not generally segregate out an investor’s share of the fund’s assets like you would find with the administrators report.
When start up fund managers are discussing brokerage arrangements with various firms this is something that they should look into. Additionally, if a manager does decide to provide this sort of access to their investors the hedge fund offering documents should specifically describe the level of access being provided to the investor.
Please feel free to contact us about this article. We are interested in hearing your thoughts.