GLOBAL – Lyxor Asset Management has introduced a new share class for commingled investors in its hedge fund managed account platform.
Targeting larger institutions with a bigger minimum investment level and less favourable liquidity terms, Lyxor said that it would improve commingled investors’ ability to negotiate better fees with its underlying hedge fund managers.
Head of the managed account platform Lionel Paquin highlighted the ability to negotiate fees as the driving force behind its decision. “We are taking this major initiative in the area of fees because this is a top priority for institutional clients.
“We think that Lyxor, with its footprint in the industry, has a role to play in this area,” he added.
Investors currently use Lyxor’s managed account capability in three different ways.
PGGM – the €128bn pension provider and asset manager for pension schemes mainly in the Netherlands’ care sector – has built its own platform in collaboration with Lyxor. Other large, sophisticated institutional investors set up their own segregated managed accounts using Lyxor’s platform. These investors are able to negotiate a range of terms and conditions directly with the underlying managers or in partnership with Lyxor.
The rest of Lyxor’s managed account investors – mainly funds of funds, private banks and smaller institutions - allocate via a commingled product, whose B-share has a minimum investment level of $100,000 (€75,000) and offers weekly liquidity, and which costs the investor up to 0.7% annually in addition to the underlying managers’ fees.
“We have decided to launch an institutional share class that fits into the gap between those two businesses,” Paquin told IPE.
The new S-share will have a minimum investment level of $5m and offer monthly liquidity, on average.
“We can negotiate with managers on the understanding that this new share class targets fee-sensitive entities who write larger tickets and represent stickier money, but do not have the time or resources to negotiate terms themselves,” Paquin said.
“The share class launched just over a week ago and is live for more than 30 managers on the platform so far. They recognize that these are very secure investors, and also, perhaps, investors that are difficult for them to access themselves because they value the advantages that a managed account can bring.”
Paquin claims that, on average, managers’ fees can be negotiated down by an amount roughly equivalent to the Lyxor platform’s 0.7% charge, so that investors can get access to the underlying strategy for the same total expense ratio as if they invested in the fund direct.
“We really believe this is a significant shift and that it will enable us to target a lot of investors with assets ready to be invested, but which are very fee-sensitive,” he said.
At the end of 2012, $11bn of client assets were invested via Lyxor’s managed account platform. Ten of its 13 strategy groups posted positive returns for the year and three enjoyed double-digit returns.
IPE asked three other major hedge fund managed account platform providers to give details of their fees and comment on their own plans to create investment solutions for the type of institutional investor that Lyxor is targeting with its S-share.
Deutsche Bank did not meet the deadline for comment. State Street-owned InfraHedge declined to comment.
Steve McGoohan, head of MAC lifecycle and transparency at MAN Group, said: “FRM [the fund of hedge fund business acquired by Man Group in 2012] has been actively negotiating all fees, both of the investment manager and service providers, on behalf of all investors and passing these discounts on to them for some time.
“Institutional investors, who FRM have a long track record of partnering with to offer cost effective investment solutions using managed accounts, benefit both from FRM’s significant scale for investment management fees and Man Group’s scale for service provider fees,” he said.
“With respect to liquidity,” McGoohan added, “it is extremely important to us and our clients that the liquidity of the managed accounts are both consistent for all investors and set to match that of the underlying trading liquidity of the investment profile.”