JERSEY CITY, N.J., Pershing LLC, a BNY Mellon company, announced today the availability of a new report, Transparency and Liquidity: The Growth of Separately Managed Accounts in the Hedge Fund Industry. This independent study examines the emergence of separately managed accounts (SMAs) as increasingly popular hedge fund structures and the growth opportunities this trend presents to managers.
The study, developed with Greenwich Associates, a research-based strategy management financial services firm, details growing investor demand toward SMAs and provides guidance on how hedge fund managers can more effectively incorporate SMAs into their investment solutions and attract additional assets. The study, conducted by Greenwich Associates, is based on detailed interviews with 41 hedge fund and investment managers and 27 leading institutional investors.
Highlights of the study include the following:
- Input on Investment Decisions Drives Investors to SMAs Nearly 63% of the investors who participated in the survey cited the opportunity to have greater influence on SMA strategy and input in the area of risk management as one of its primary benefits. This is a result of many investors having experienced significant losses in the past few years.
- Demand for Transparency Increasing Approximately 45% of hedge fund managers reported that investors in pooled funds are pushing for higher levels of transparency. More than 50% of the investors pointed to daily transparency as a central reason for using SMAs, a benefit that many investors associate with better protection against fraud risk.
- Access to Liquidity Needed 33% of the surveyed investors cited access to liquidity as an important benefit of SMAs. Almost 50% of hedge fund managers said they are experiencing pressure from their investors to eliminate lockup periods and redemption notice requirements while fewer managers report pressure from investors to reduce fees. Investors are reassessing the role of illiquid assets within their portfolios and seeking greater liquidity across all investments.
- Opportunity for Hedge Funds To Attract Additional Assets Nearly 80% of the hedge fund managers interviewed currently offer SMAs as part of their investment solution and most confirm that SMAs are instrumental in attracting investor assets because they address investors’ greatest concerns: transparency, liquidity, customized investments, and the ability to negotiate fees. However, despite having the necessary infrastructure, the study also reveals most managers are not actively promoting SMAs. More than 60% of the hedge fund managers cited administrative requirements and resource demands as serious disadvantages associated with SMAs, while 33% cited additional costs as a significant challenge.
“The increasing demand among investors for SMAs demonstrates the growth opportunity for hedge fund managers who incorporate SMAs into their investment strategy,” said Craig Messinger, managing director at Pershing Prime Services. “Hedge fund managers should consider strengthening business operations internally and leveraging the full capabilities of their prime brokers to meet the growing investor demand for greater transparency, liquidity and flexibility,” added Messinger.
John Colon, managing director at Greenwich Associates, said, “Prime brokers can help hedge fund managers develop efficient offerings that reduce administrative burdens while meeting investors’ current needs. As investors gravitate to the SMA structure, growth-minded hedge funds managers seeking new assets and longer-lasting relationships with their clients will look to abandon older “black box” models in favor of more tailored offerings.”
Pershing Prime Services delivers an unconflicted, comprehensive suite of global prime brokerage solutions, including extensive access to securities lending, dedicated client service, robust technology and reporting tools, worldwide execution and order management capabilities, a broad array of cash management products, and the integrated platform of BNY Mellon. Pershing Prime Services is a service of Pershing LLC. A copy of Pershing’s new independent study and additional information about Pershing Prime Services’ capabilities and solutions can be found by visiting www.pershingprimeservices.com.
Pershing LLC (member FINRA/NYSE/SIPC) is a leading global provider of financial business solutions to more than 1,150 institutional and retail financial organizations and independent registered investment advisors who collectively represent approximately five million active investors. Located in 21 offices worldwide, Pershing and its affiliates are committed to delivering dependable operational support, robust trading services, flexible technology, an expansive array of investment solutions, practice management support and service excellence. Pershing is a member of every major U.S. securities exchange and its international affiliates are members of the Deutsche Börse, the Irish Stock Exchange and the London Stock Exchange. Pershing LLC is a BNY Mellon company.
BNY Mellon is a global financial services company focused on helping clients manage and service their financial assets, operating in 36 countries and serving more than 100 markets. BNY Mellon is a leading provider of financial services for institutions, corporations and high-net-worth individuals, providing superior asset management and wealth management, asset servicing, issuer services, clearing services and treasury services through a worldwide client-focused team. It has $21.8 trillion in assets under custody and administration and $1.0 trillion in assets under management, services $11.6 trillion in outstanding debt and processes global payments averaging $1.5 trillion per day. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. Additional information is available at www.bnymellon.com.
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