IGS Group LLP and MSS Capital Limited today announced the launch of MAG Consultancy (Managed Accounts and Governance Consultancy), a new 50/50 joint venture partnership between their two firms that has been established specifically to design and build Separate Managed Account Platforms (SMAPs) for asset owners, hedge fund allocators and institutional investor clients. The combined resource of the two firms creates the leading intellectual resource on constructing SMAPs, the firms having been involved in building and managing six such platforms between them. IGS Group is a leading consultancy advising both investors and product providers in the multi- alternative assets investment ‘space’ and MSS Capital has an eight year track record of building and managing SMAPs for investors around the world.
Financial turmoil throughout 2008 has led to the collapse in returns for hedge fund investors, irrespective of investment strategy pursued, and inadequate reporting standards, levels of transparency, and accountability have exacerbated the troubles currently being faced by investors and managers alike. Whilst SMAPs have been available for more than 10 years as a defined structure for accessing the returns of hedge funds, their use by investors has amounted to only 2% of total industry assets. However, even prior to the Madoff event, it had become increasingly apparent that the levels of Governance that clients assumed was implied in the service provision by Fund of Hedge Funds and Hedge Fund allocators was not being fulfilled, and such an omission has been partially responsible for many of the losses incurred by investors.
SMAPs provide full separation and independence of valuation, custody and power over liquidity terms from the hedge fund manager. The hedge fund manager is able to execute his strategy as normal, but all assets are held on the in independent, segregated accounts for the benefit of the Investor. Such a system normalises all of the risks of valuation problems, un-announced style changes and straight-forward fraud. The power over the assets is switched from the hedge fund manager to the Investor. As a result the Investor is better informed and fully empowered to make better investment decisions and to allocate his scarce capital more efficiently in the pursuit of maximum diversification benefits.
2009 is anticipated to see a rush to alter infrastructure in favour of SMAPS as hedge fund managers respond to investor demands for maximum levels of transparency, liquidity, reporting and governance. These will become the new imperatives for the year ahead. Expectations vary, but perhaps as much as 25% of the assets invested in the hedge fund industry will be expressed via independent SMAPs by the end of 2012.
MSS Capital has seen an exponential increase in demand for its expertise since the collapse of Lehman Brothers in September last year which took one of the largest prime brokers out of the marketplace. This has lead to hedge fund managers urgently wanting to be seen to be offering a proper account of their positions. Asset owners, institutional clients, Fund of Hedge Funds and other hedge fund allocators are now seeing SMAPs as the only way to ensure continuing business credibility.
Simon Hookway, CEO of MSS Capital commented: ‘ “The hedge fund investment rationale for many years was one of performance. With effect from Q4 2008 the hedge story is now all about Governance. SMAPs are the single most powerful tool in effectively achieving this.”’
John Godden, CEO of IGS Group added: “Managed Account Platforms were used quite heavily by Banks when taking risk on Hedge Funds particularly between 2000 and 2004. Now the users are core Hedge Fund allocators and institutional owners who are looking to remove all Infrastructure risks leaving only the market risks required.”
