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Hedge fund investors embrace managed

accounts
Wed Mar 14, 2007 4:34pm EDT

By Dane Hamilton

NEW YORK, March 14 (Reuters) - The abrupt implosion of the $9.5 billion
hedge fund Amaranth Advisors last year boosted demand for a relatively new
investment called the managed account, participants heard at a New York
conference on Wednesday.

While still a small proportion of the $1.4 trillion hedge fund industry, managed
account use is growing because it offers benefits over traditional hedge fund
investing, proponents said. Top among them is transparency: an investor
knows which holdings a hedge fund is invested in and can liquidate those
positions quickly.

The use of managed accounts, which are essentially segregated portfolios

directed by a hedge fund manager, comes as demand for hedging strategies
continues to surge with institutional investors looking for consistent and high
returns.

But investors are equally worried about avoiding hedge fund implosions that
periodically rock the industry, such as Amaranth, Bayou Group and
Singapore-based Aman Capital, which blew up in 2005 after it lost 20 percent
of its $242 million portfolio over one week. Some say better transparency and
liquidity is one solution.

"Things can go spectacularly wrong over a short period of time," said Simon
Hookway, chief executive of London-based MSS Capital Ltd., which has
some $300 million allocated to 40 hedge funds, including managed accounts.
"The hedge for investment risk is adequate transparency and diversity across
a portfolio."

In a typical hedge fund, investors are privy to the fund's strategy and
objectives, but not individual holdings, leverage levels and other data. In a
typical managed account, however, investors have daily access to data on a
hedge fund's holdings, leverage positions and net asset values.

And importantly, the managed account is considered the property of the

investor, meaning positions can be liquidated as soon as trouble is sensed.

For instance, some investors could have bailed out of Amaranth prior to its
collapse had they known the fund was heavily allocated to one highly
leveraged strategy: betting that the price of natural gas would rise. The firm
lost over $6 billion over two weeks last September, the worst loss in hedge
fund history.

Hedge fund managers, which typically cherish their secrecy and

independence, have not embraced managed accounts, however. Investors
generally have to allocate some $30 million to $100 million to persuade a

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hedge fund manager to set up such an account, according to MSS.

Still, many of the largest hedge fund groups, such as London-based GLG
Partners, RAB Capital Plc (RAB.L: Quote, Profile, Research) and Lansdowne
Partners, do accept managed accounts, and more are considering it.

"What you end up with is for a client to be able to create unique risk-return
solutions," said Garry Crowder, chief executive of CASAM Americas, which
helps manage some $4.3 billion, much of it through 71 managed accounts as
part of Credit Agricole Structured Asset Management (CAGR.PA: Quote,
Profile, Research).

Crowder said some investors are not enthralled with the concept of managed
accounts, since knowing each of the thousands of trades a fund many
execute daily may not be indicative of how the fund is performing. But his firm
provides investors with daily net asset values and other information to
investors to better evaluate their holdings and avoid risk pitfalls.

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