Structure
When we allocate to a manager we choose between investing in their commingled fund and opening a separately managed account that the manager trades under an investment management agreement. Both are legitimate. The choice depends on what we need to see, what we need to control, and what the arrangement costs to run.
What a managed account gives us
Transparency is the main prize. In a managed account we hold the positions, so we see the portfolio daily rather than receiving a monthly summary. That allows us to aggregate exposures across all our managers and answer questions that are otherwise unanswerable — how much of a single issuer do we own across the whole portfolio, how many managers are short the same volatility, what happens to us in a specific scenario.
Control is the second. The investment management agreement sets explicit guidelines: permitted instruments, leverage limits, concentration limits, prohibited activities. Breaches are visible immediately rather than at the next reporting date. If the relationship ends, we terminate the agreement and retain the assets, rather than queuing behind a notice period and a possible gate.
Isolation is the third and least discussed. In a commingled fund we share liquidity terms with every other investor, which means their redemptions can force selling that damages us. In a managed account we are unaffected by other investors' behaviour.
What it costs
Managed accounts require infrastructure: a legal entity or platform cell, an administrator, a custodian or prime broker, independent valuation, and someone on our side monitoring guidelines. Those costs are largely fixed, which means the arrangement only makes sense above a certain allocation size. Below it, the drag exceeds the benefit.
There is also the question of tracking difference. A managed account rarely replicates the flagship fund exactly — allocation of limited opportunities, minimum trade sizes, financing terms and timing all create divergence. Managers should be explicit about how they allocate capacity between the fund and any accounts, and we ask for that policy in writing.
When we choose each
We generally prefer a managed account where the strategy is liquid enough to be replicated, the allocation is large enough to absorb the fixed costs, the manager is early-stage or the operational review raised findings we want to mitigate, or the strategy's exposures need to be aggregated with others for portfolio risk management.
We generally use the commingled fund where the strategy holds genuinely illiquid or hard-to-transfer assets, where the fund structure provides financing or netting benefits that a standalone account cannot replicate, where the allocation is below our threshold, or where the manager's capacity allocation makes the fund the better vehicle.
Platform or direct
Where a managed account is appropriate, it can be established directly or through a managed account platform. Platforms bring speed, established documentation and independent risk reporting at a running cost; direct structures cost less over time but require more of our own infrastructure. We use both, and the decision is usually driven by how many accounts we expect to run with that manager over time.
A note for managers
Some managers resist managed accounts on the grounds of complexity, and the concern is legitimate. In our experience the friction is manageable when the guidelines are drafted jointly and kept short enough to be operationally realistic. Guidelines that require a compliance check before every trade help nobody.