In the world of money management, investors have options and sometimes those options are not always very clear. The relationship that exists in managed money is a direct one between the investor and the money manager. Being an investor and trader myself, it is easy to identify the perspectives that exist in the client/manager relationship. One is from the money managers’ perspective and the other is from the investors’ perspective. What’s certain is that the client should always be the boss. A better way of explaining this is comparing it to the structure of a professional sports team. The owner of the franchise is the boss or in this situation the investor and the coach is the decision maker or the money manager. But when it comes to investing and managing risk the dynamics become a bit more complicated and at times political.

I started out trading for individuals and as performance grew my interests to manage more money grew, too. The growth of technology and the capability of brokerage firms to offer sophisticated back office support has increased interest in managed accounts. Managing multiple accounts for investors is only possible with sophisticated technology. It allows a manager to trade once while allowing the back office systems to allocate trades to multiple client accounts in real-time. Without such technology managers would find it difficult to piece out a trade to all of their clients. As a managed account money manager I know that technology has had just as much of an impact as trading skill in providing clients with attractive performance.

If, for example, I want to be long euro against the dollar and I have 100 clients, I can buy X amount of euros in one transaction and the back office will split that trade to all clients based on the amount of capital they have invested. This makes it much easier to enter and exit the market. Hedge funds have their own administrator or hire one for a fee. With managed accounts, there are no fees to the manager. Trading and back office are kept as separate components in a properly structured asset management business.

Access to money important
Over the past decade we have witnessed exponential growth in the number of hedge funds operating from around the globe. But when an unexpected event occurs or the global banking system goes into a frenzy investors suddenly begin to realise that their funds are not sufficiently liquid and in many cases they don’t even know what they are actually invested in. The recent credit crisis brought to the attention of investors that access to money and visibility into the nature of their investment is just as important as performance. Personally, I know if I need my money I wanted it yesterday. If my money is invested and I need it I will have to accept the fact there can be a loss incurred for exciting early.