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Consultancy launched to meet investors’ new governance and transparency requirements

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London-based IGS Group and MSS Capital have announced the launch of MAG Consultancy (Managed Accounts and Governance Consultancy), a joint venture partnership established to design and

London-based IGS Group and MSS Capital have announced the launch of MAG Consultancy (Managed Accounts and Governance Consultancy), a joint venture partnership established to design and build separate managed account platforms for asset owners, hedge fund allocators and institutional investor clients.

The two firms have been involved in building and managing six such platforms between them. IGS Group is a consultancy advising both investors and product providers in the alternative assets investment space, while MSS Capital has an eight-year track record of building and managing separate managed account platforms for investors around the world.

The past year’s financial turmoil 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 faced by investors and managers alike.

Whilst separate managed account platforms 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 per cent of total industry assets.

However, even prior to the Madoff scandal, 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.

Separate managed account platforms 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 in independent segregated accounts for the benefit of the investor. This system normalises all of the risks of valuation problems, unannounced style changes and straightforward fraud. The power over the assets is switched from the hedge fund manager to the investor.

This year is anticipated to see a rush to alter infrastructure in favour of separate managed account platforms 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 per cent of the assets invested in the hedge fund industry will be expressed via independent separate managed account platforms by the end of 2012.

MSS Capital says it has seen an exponential increase in demand for its expertise since the collapse of Lehman Brothers last September, which took one of the largest prime brokers out of the marketplace. This has led to hedge fund managers urgently wanting to be seen to be offering a proper account of their positions. Asset owners, institutional clients, funds of hedge funds and other hedge fund allocators now see separate managed account platforms as the only way to ensure continuing business credibility, the firms say.

‘The hedge fund investment rationale for many years was one of performance,’ says MSS Capital chief executive Simon Hookway. ‘From the fourth quarter of 2008 the hedge story is now all about governance. Separate managed account platforms are the single most powerful tool in effectively achieving this.”

Adds IGS chief executive John Godden: ‘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.’

MSS Capital is an independent asset manager and investment adviser that structures and runs bespoke managed account platforms for institutional and retail hedge fund investors. It is also investment advisor to the FTSE Hedge Fund Index series of products. Founded in 2001, MSS has raised more than USD1bn for its asset management products and additionally advises third-party investors.

IGS Group offers the alternative investments product and investing communities services covering all aspects of product design, strategic market positioning, infrastructure design and distribution.

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