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Man Investments-Credit Suisse hedge fund managed account initiative makes strategic sense

Many industry observers are forecasting a seismic leap in assets heading for managed accounts over the next few years so it is little surprise many product providers are seeking to develop managed account platforms. There are however significant challenges to entering this space - in management speak there are high barriers to entry. You can currently count on one hand plus the odd thumb the existing platform players who have the scale to make it work. In the managed account platform business, size matters and not just simply from a cost perspective. This is where I believe the Man Investments-Credit Suisse tie-up really gets going. The opportunity is now - the lead time to get real scale and credibility from a standing start as a managed account platform will chip away at that opportunity. The opportunities for principal (eg. pension funds) or principal-intermediated (eg. fund of funds) investors to utilise managed accounts are quite different so cannot be grouped into this discussion.

The challenges involved in building a product driven managed account platform business (as opposed to using managed accounts for principal or principal-intermediated investment) are many-fold. Not only will the business need to have deep expertise in a range of areas including investment management, risk management, structuring and operations, but it will also need to shoot the lights out on two critical success factors namely:-

1)Product distribution and asset raising; and
2)Manager availability and capacity on the platform

These two points are clearly related – if you have substantial product distribution, good managers will probably work with you and if you have good managers you can probably get access to great distribution. A catch 22 some may call it. The real trick is working out how to break out of the initial catch 22 and get onto the rising part of the growth J-curve.

One of the real challenges in this space is working out how to relate to the managers on the platform. Having a large book of multi-manager assets to deploy is a major advantage here. Just as important is the platform’s credibility in the eyes of the manager – they won’t want to go to the effort of establishing a managed account only for it never to receive any real scale of assets.

Whilst most global banking institutions have all the building blocks in place to run a managed account platform not all have chosen to do so. Several have tried and failed but a number have genuinely succeeded. To me, having the building blocks of investment advisory, asset management, structuring and operations are simply the foundation. Without the appropriate strategic plan, detailed understanding of running these businesses and access to many billions of prop capital or massive distribution, success is likely to be highly elusive. 

In my opinion, Credit Suisse and Man Investments are now in a strong position to execute on current investor needs through this initiative.

Originally published in The Hedge Fund Journal on 6th November 2008.

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Disclosure:  No personal position or exposure to either stock.