The next natural step in the development of the separate account is the UMA (United-Managed Account). This account covers all financial planning requirements of an investor.

However, many companies strive to do this at a very significant expense to the company. You are not lucky if your company lacks the financial resources to implement this.

A UMA is a single registered account that can cover each investment vehicle in the portfolio of an investor. This account provides both pre-selected models of asset allocation and customizable allotments for customers. 

The desired asset allocation remains systematic rebalancing, and the fee-based offset is product-neutral.

Wealth management uses a UMA framework to handle different sleeves of investment in a single master account. The investor may have different accounts mandates under one master, funds managed by the adviser, funds of funds, sub-advised mandates, assets self-managed, and more under a single master.

The different approaches to unified managed accounts

Every UMA security model is referred to as a ‘sleeve’ and may be partitioned. Two sleeves would be a shareholder SMA and a single mutual fund. 

Partitioned sleeve based 

A partitioned Sleeve-based platform records the manager who bought such holdings at UMA on individual tax lots. This means that we provide ‘versus purchase’ instructions to guarantee that our books keep in line with ourselves when trading a certain tax lot for the manager.

Blended sleeve based 

No documentation of where the tax lot came from is historical. So nowadays, what a sleeve appears like differs from yesterday’s looks. A mixed technique allows a platform, rather than looking back in time, to build a sleeve on the current holdings.

How unified managed accounts work

  • Financial market investment needs knowledge and time that many investors do not have. Often the aid of financial consultants and dealers is given to high-net-worth individuals. Investors are looking for hedge funds, reciprocal funds, and ETFs, including investor fund poolings.
  • The investors are actively supported by the usual hedge fund and its services to rich customers. The fund manager is left to the customers. Hedge funds are prone to implosions, which may lead to enormous losses.
  • Investors can obtain detailed portfolio performance data through managed accounts. An investor can therefore urge the manager to withdraw from a hazardous investment. The management shall comply with this requirement.
  • You allocate money to your money manager in these accounts, who utilizes the cash to build a portfolio. Investments, bonds, mutual funds, and property might be included in the portfolio. The property is owned by the investor, and taxes do not apply.
  • The money manager will invest and trade for you, taking your financial objectives into account. The management will not invest in an asset that is contrary to your desire. Every aspect of the trading activity will be reported by the manager.

Benefits

Transparency and control 

For institutional investors, transparency is increasingly becoming a key area. Whenever the investor needs more clarity, managed accounts provide transparency on the underlying portfolio assets. 

This can be compared to a mixed fund in which the transparency level is usually limited and accessible weekly or monthly.

An investment fund provides the investor with complete ownership and ultimate control of the underlying assets, including the ability to invest and disinvest. This eliminates the influence of activities of other investors and the danger of the hedge fund management interrupting disinvestment (e.g., gates and side pockets).

In order to cover the investment, the investor can additionally add overlay assets to the hedge funds’ portfolio, add incremental leverage and pursue incremental alpha.

Liquidity

A managed account enables investors to better understand the liquidity of their investment in hedge funds. It decreases the liquidity levels to be considered by the investor, with the only worry at the underlying asset level. 

For example, the activity of other investors in the same fund may influence the investor under a mixed fund.

By using a managed account, the investor is better placed to judge real liquidity at lower liquidity levels and may make more educated choices about where to store their money and what sort of assets they have in their managed bank accounts.

Customization

Managed accounts give a tailor-made solution to enable pension fund guidelines and volatility management. 

A managed account allows an investor to provide a certain investing mandate to the hedge fund manager. This allows the investor to build a portfolio that is tailored to their needs.

Ongoing monitoring and risk management

In the context of risk management, a hedge fund investment for a management account gives better clarity and insight. Typically, such accounts may be seen “live” with frequent reports (e.g., daily). 

The monitoring and risk management of the broader portfolio of investors will have equally favorable effects.

Drawbacks

Managers offering managed accounts

The potential economic benefits – i.e., higher capital and management assets, are a major incentive to provide managed accounts to investors.

Some hedge funds managers are not prepared to offer managed accounts, which can result in an adverse selection factor if an investment is based on a managed account. 

Some hedge fund methods will also exist when managed accounts do not meet some investors’ demands. 

Reduced alignment of interests 

The manager can invest alongside their investors in a mixed hedge fund. There is a danger of adversely affecting the alignment of the interests between the investor and the manager.

Structuring charges for incentive charges helps minimize this (with the accompanying moral hazard noted).

Increased liability

Some methods of hedge funds use tools like derivatives that can amplify losses (as well as gains). This might lead to a loss of greater investment than the initial money given.

Operational costs

All associated costs will only be borne by the investor with a managed account. It is possible to get minimal savings through mixing funds with other investors. However, certain service providers are probably already in place for investors considering administered accounts.