Hedge fund managers are warming up to separate custom funds

Hedge fund clients want more specialized separate accounts, and hedge fund managers are warming up for the transition.

Also, hedge fund managers are moving up towards the demand from pension funds, foundations, endowments, a hedge fund of funds, and other allocations for custom versions. The custom version is a flagship hedge fund strategy that better meet their investment goals.

According to some sources, assets managed customized hedge fund accounts have skyrocketed over the past five years.

HedgeMark International LLC, New York, for example, has seen massive growth in assets in separately managed hedge fund accounts on its investment platform, said its CEO Andrew S. Lapkin.

HedgeMark International LLC is the industry’s largest hedge fund managed account provider.

Among hedge fund managers offering customized strategies to institutions are; Algert Global LLC; Abbey Capital Ltd.; Chatham Asset Management LLC; Bridgewater Associates LP; Marshall Wace LLP; Graham Capital Management LP; and Napier Park Global Capital LP.

“Hedge funds are trying to find new ways to increase their relevance to institutional investors, and customization is one of the keys to that effort. By doing so, they are becoming better partners,” Mr. Marenda said.

Hedge managers of the funds-of-funds are also delving deeper into the customization at both the portfolio level. The customized strategy is the underlying element of the portfolio.

“Custom is in. Everyone wants it. The concept of customization is intriguing and has a cache,” said William J. Ferri, the New York-based head of America’s asset management and head of multimanager solutions for UBS Asset Management.

He said, older mingled hedge fund-of-funds portfolios were shrinking and getting harder to sell. 

Ferri is the UBS Asset Management, which has $41 billion in hedge fund-oriented strategies.

Another hedge fund that still has significant assets managed in the mingled fund family is the Corbin Capital Partners LP, New York. It has $7.5 bn assets under management, but $3.2 billion of it is managed in customized portfolios.

Man Group PLC, London, has taken customization to a higher level than other hedge funds-of-funds specialists.

About 85% of its hedge funds-of-funds offerings from Man FRM now are customized.

“There has been a dramatic increase in customization for more tailored approaches over the years,” Mr. Turner said, noting, “you can have your strategy in any color you like, with internally or externally managed hedge funds. It’s rare to see anything `plain vanilla’ cross our plate. Many investors come to us and ask for assistance in combining hedge fund strategies into a multistrategy portfolio.”

Man FRM manages $14.4 billion in multimanager strategies.

The industry experts expect even more hedge fund managers to customize their strategies going forward.

Ernst & Young Global Ltd. 2019 Global Alternative Fund Survey 

In the Ernst & Young Global Ltd. 2019 Global Alternative Fund Survey report, researchers said asset owner demand for investing in hedge funds through separately managed accounts.  

Funds of one is “a trend that started this decade which shows no signs of slowing into the future.”

Of the 113 hedge fund managers surveyed between July and September for the EY report, more than 60%, including more than 75% of those firms with assets of more than $10 billion, offer separately managed accounts now.

Over the next two years, 39% of hedge fund managers surveyed said they expect the use of separately managed accounts by investors will increase, and 37% said they believe more investors will use funds of one and single-investor funds.