Managed account structures | KPMG | GLOBAL

Managed account structures

Managed account structures

The investment management agreement defines managed account terms for hedge fund manager.


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The Investment Management Agreement

Managed accounts are separate investment accounts. The underlying assets are owned by the investor and registered in their name. The hedge fund manager’s link to the managed account is through an IMA. Negotiation of the IMA is a key aspect of setting up the management account.


The investor delegates investment decisions to the hedge fund manager through the IMA. Covered in the agreement are the terms for the manager to make investments and manage the portfolio on behalf of the investor. The IMA can be structured to address risk within the portfolio. For example, certain hedge fund strategies utilitize instruments, such as derivatives, that have the potential to magnify loses (and gains). As the liability lies with the investor, it may be appropriate to prohibit the use of certain instruments in the IMA.

There are no liquidity restrictions as with a commingled fund. To reallocated assets or change the hedge fund manager, the IMA is terminated.

Included in the IMA are specific investment and commercial terms. Fee structures should be specific to the customized investment mandate. As there is no ability for the hedge fund manager to invest along with the investor, fee structures need to favor incentive fees to align interests of the investor and the  manager. It is anticipated managed accounts will increase pressure to customize and lower management fees.

Triggers such as key man clauses can also be included in the IMA.

The investor sets the service agreements and the IMA

The investor controls the managed account

The operation of a managed accounts is complex

It is separate account, with the investor responsible for the operational aspects, including the set-up of the managed account. This is significant at the time of account set-up. And with the increased cost and complexity of managed accounts, infrastructure providers have increased in prominence. The appointment of third-party service providers can include prime brokers, administrators and custodians.

Versus a commingled account the operational costs are much clearer in a managed account. However, the managed account does not have benefit from the economies of scale that come from shared costs in a commingled fund, therefore costs are expected to be higher for a managed account. Savings may be possible by using specialist providers of hedge fund services and are the key reason investors should have sufficient size and scale to ensure the managed account is viable.

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