IFM36367 - Disguised fees: Managed Accounts and other parallel structures (from 6 April 2016): Managed accounts

Managed Accounts

ITA07/S809EZA(7)(a) - (b)

Managed accounts in their simplest form can be thought of as a fund comprising one investor, usually known as the ‘managed account investor’ providing the capital which is managed by the fund management team. These managed accounts may operate and invest alongside a more mainstream fund vehicle, typically referred to as the ‘parent fund’ which is managed by the same team. See the diagram below for a simplified example. A managed account may resemble a smaller version of the parent fund and may have the same carried interest structure. However, a variety of vehicles can be used to implement such an arrangement.

Managed Accounts – managed account alongside parent fund

A common reason for this approach is where an investor has particular requirements which cannot be catered for if it invests in the parent fund vehicle alongside a range of other investors. Such an example would be an institutional investor which may not want to invest in certain industries such as tobacco or alcohol.

Investing through a managed account allows such an investor to decline participation in any investments which fall outside their requirements. This is why on the above diagram most of the fund’s investments are also investments made by the managed account, but there is likely to be disconnected investments where the managed account declines to participate.

There may be other reasons for a managed account. It allows the managed account investor to negotiate a separate deal with the fund management team, potentially around carried interest and management fees, which is kept private from other investors. Some managed account investors may also want more control over the investments made, perhaps retaining the right to refuse certain opportunities even if they do not violate any ethical guidelines or, conversely, to take a disproportionately bigger stake in an investment it feels particularly positive about.