How quantitative approaches can be used to systematize the managed accounts allocation process and support the manager’s expertise



Managed accounts: a different approach to investment
A managed account (also called controlled account or discretionary account) is an investment account dedicated to high net worth investors. It is professionally managed (usually by a Private Bank) but can be personalized to fit the investor’s needs or preferences, as opposed to a fund-based investment.
A managed account is a segregated portfolio that is:
- managed by a portfolio manager, whose role consists in selecting the assets, building the portfolio and execution the trades;
- controlled by a third party (investment manager or administrator) in charge of portfolio valuation, margining,…

Lasting success or transient enthusiasm?
The recent bearish market conditions and the general mistrust of hedge funds due to recent scandals have been playing their part in the growing popularity of managed accounts. They offer more transparency, control and liquidity, 3 key arguments to reassure investors these days.
The retail managed accounts industry weighted $1.33 trillion early 2009 and is expected to grow in the near future:

Systemizing the managed accounts allocation process with PRISM
Through our web platform PRISM, RaisePartner provides powerful quantitative pre-trade tools that can be very useful to private banks when dealing with a large number of managed accounts. PRISM helps account managers systematize their process while respecting their discretionary approach. For instance, they can define a limited number of strategic asset allocations, and then easily tailor these portfolios to each investor’s needs through a tactical allocation, with specific constraints, risk-return profiles, views on the market, etc…
PRISM can also be integrated into Managed Account Platforms to provide account managers with systematic tools to analyze and design discretionary portfolios for their clients.

PRISM: a decision-aid application to support the manager’s expertise
With PRISM, account managers can follow their clients’ portfolios through personalized risk/return reports. They can use the tailored risk signals provided in the application to suggest and clearly explain new portfolio compositions to the accounts’ holders. PRISM works hand in hand with the account managers by providing them with quantitative decision-aid tools and placing their expertise at the heart of the portfolio allocation decision through screening, strategy design, views, constraints…

From transparency to readability: PRISM as a marketing tool for the account managers
One of the key mentioned benefits of managed accounts is the full position-level transparency. But a key question remains: as transparent as it is, how can this data be aggregated into useful and readable information for the investor? Portfolio managers can rely on PRISM modeling and analysis functionalities to explain their choices to the accounts holders and convince new clients.


Sources: The Hedge Fund Journal, The Cerulli Edge™—Managed Accounts Edition