featuring Amundi // Deutsche Bank // Innocap // Linear Investments // Luma Solutions // Man Group // Lyxor

RegulationCreating solutions to ensure compliance with AIFMD and Form PF requirements

accessThe development of a single platform to tap into a broad array of investment strategies

contRolProviding investors with increased security and flexibility

M a n a g e d a c c o u n t s 2 0 1 3

WeekhFMS P e C I A L r e P o r T

001_HFM_ManagedAccounts 2013_Cover.indd 1 19/07/2013 16:05

AIFMD is here. Deutsche Bank is ready. We provide depositary services, award-winning fund administration, globally aligned investor services, multi-currency cash management and a highly regarded sub custody network spanning more than 30 markets around the world – whether you choose to use us as your prime broker or not.

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This advertisement has been approved and/or communicated by Deutsche Bank AG. This advertisement does not constitute an offer or a recommendation to enter into any transaction. The services described in this advertisement are provided by Deutsche Bank AG or by its subsidiaries and/or affiliates in accordance with appropriate local legislation and regulation. Deutsche Bank AG is authorised under German Banking Law (competent authority: BaFin – Federal Financial Supervisory Authority) and authorised and subject to limited regulation by the Financial Services Authority. Details about the extent of Deutsche Bank AG’s authorisation and regulation by the Financial Services Authority are available on request. Investments are subject to investment risk, including market fluctuations, regulatory change, counterparty risk, possible delays in repayment and loss of income and principal invested. The value of investments can fall as well as rise and you might not get back the amount originally invested at any point in time. “Passion to Perform“ is not a product guarantee. © Copyright Deutsche Bank 2013.

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Untitled-2 1 19/07/2013 11:42

h f m w e e k . co m 3

RepoRt editoR Alexis Burris T: +44 (0) 20 7832 6656 a.burris@pageantmedia.com RepoRt wRiteR Jasmin Leitner T: +44 (0) 20 7832 6657 j.leitner@pageantmedia.com HFMweeK Head oF content Tony Griffiths T: +44 (0) 20 7832 6622 t.griffiths@pageantmedia.com Head oF pRoduction claudia honerjager Sub-editoRS Rachel kurzfield, eleanor Stanley, Luke Tuchscherer ceo charlie kerr gRoup coMMeRcial ManageR Lucy churchill T: +44 (0) 20 7832 6615 l.churchill@hfmweek.com SenioR publiSHing account ManageR Bryce Robson +44 (0) 20 7832 6616, bryce.robson@hfmweek.com publiSHing account ManageRS Tara Nolan +44 (0) 20 7832 6612, t.nolan@hfmweek.com content SaleS emily Newton T: +44 (0) 20 7832 6598 e.newton@hfmweek.com ciRculation ManageR fay muddle T: +44 (0) 20 7832 6524 f.muddle@pageantmedia.com

hfmweek is published weekly by Pageant media Ltd ISSN 1748-5894 Printed by The manson Group © 2013 all rights reserved. No part of this publication may be reproduced or used without the prior permission from the publisher

Published by Pageant media Ltd londonThird floor, Thavies Inn house, 3-4 holborn circus, London, ec1N 2hAt +44 (0) 20 7832 6500 new YoRK 240 w 37th Street , Suite 302, NY 10018 t +1 (212) 268 4919

ith hedge fund managers facing increasing regulatory pressures, particularly in Europe, as well as ongoing concerns over the economic landscape, many investors are turning to managed accounts as a means to boost protection against operational risk.

The sector has blossomed in recent years as allocators look to the high levels

of transparency, liquidity, asset control and risk coverage managed accounts offer, while retaining many of the same high-quality traditional hedge fund services, such as legal and administrative services.

In addition, managed accounts are offering structured and controlled solutions that are increasingly attractive in uncertain times to investors seeking security in regards to portfolio management, prevention of style drift and transparency – growing pressures for hedge fund managers themselves.

With this continuing popularity in mind, we bring you the 2013 HFM Managed Accounts Report, providing insight and comment from industry experts discussing the benefits and opportunities of this growing structure. Whether keen or curious, managers, investors and service providers alike will find inside greater insight into the challenges associated with a complex, but rewarding, space.

Alexis BurrisRePoRT edIToR

Wm A n A g e d A c c o u n t s 2 0 1 3

003_HFM_ManagedAccounts 2013_Intro.indd 3 19/07/2013 14:18

4 h f m w e e k . co m

m a n a g e d a c c o u n t s 2 0 1 3 c o n t e n t s

managed accounts

managed accounts: an enhanced investment processStephen mcGoohan of fRm, a division of man Group, discusses the benefits of having a managed account platform with his colleagues

managed accounts

a new era of infrastructure needsfrancois Rivard and Jean Baram of Innocap discuss the changing industry environment and the growing interest in managed account platforms

fund services

administration is keykristin castellanos of Deutsche Bank fund Services-Alternatives speaks to hfmweek about the growing role of administrators in the managed account space

06

09

13

004_HFM_ManagedAccounts_2013_contents.indd 4 19/07/2013 15:29

Transparency empowers you. It provides you with a view of fund structures, and an understanding of your true risks and liquidity. With informational transparency comes the ability to make sound investment decisions. Innocap has a vast experience in the hedge fund managed account industry and offers an open architecture platform with a transparent fee-based structure. Characterized by its specialized legal knowledge and its operational and risk management skills, Innocap facilitates institutional investment decisions via an enhanced investment framework. Our platform can provide you with the competitive edge you need to excel in the marketplace! To learn more about the value of our competitive solutions, visit us at www.innocap.com.

In today’s world, successful investing depends largely on one’s easy access to reliable information. Innocap, a competitive solution for institutions with a robust, flexible and low cost offering.

innocap.com For Investment Professionals, Certified High Net Worth Individuals, High Net Worth Companies and Sophisticated Investors only. This is not an advice, an offer or a solicitation to enter into any transaction in a jurisdiction where such offer would be unlawful under the laws of that jurisdiction. 

Untitled-1 1 15/07/2013 11:28

6 H F M W E E K . CO M

M A N A G E D A C C O U N T S 2 0 1 3

Investors in hedge funds are increasingly using managed accounts with the aim of protecting against operational risks, and the traditional ben-e� ts over direct investments are well known: en-hanced liquidity terms, improved transparency and a greater control over assets in a crisis. How-

ever, managed accounts are more than just operational tools – they provide signi� cant bene� ts in the investment process, an aspect that is o� en overlooked.

At FRM, we believe our managed account platform provides � ve identi� able core investment bene� ts to our clients:

• Improved research• Enhanced investment risk monitoring• Improved portfolio management• Improved fee negotiations• E� cient investingWe discuss these in more depth below.

1. IMPROVED RESEARCH� ere is always a degree of trust when carrying out due diligence on a hedge fund manager. � e manag-er will o� en talk a good story – how they build a trade, size positions and cut risk in a crisis. But do they practise this in reality?

Managed account transparency enables our research analysts to check that what the manager says matches what they actually do. � is in turn builds trust and improves our conviction in those managers who really do deliver an investment strategy as promised.

Managed accounts also help analysts to be� er categorise hedge fund managers in relation to their peers. A manager might think that they are doing something very di� erent to the rest of the hedge fund universe, but an analysis of their holdings on a daily basis might suggest they are not as esoteric as they � rst thought.

Margaux Engelbrecht, equity long/short research analyst at FRM, agrees: “Looking at key data every day gives me a be� er sense of the manager’s investment style. Of course, it can’t be used in isolation, but it is so much

more powerful than just relying on monitoring calls and risk reports.”

2. ENHANCED INVESTMENT RISK MONITORING Managing investment risks has always been an important aspect for both hedge fund managers and their investors. Managed accounts allow us to set bespoke limits, on be-half of all investors, for individual managers based upon their trading styles. � is ensures that managers take the exposures that investors expect from the holding whilst preventing any style dri� .

With daily data, FRM’s investment risk team can set up automated checking of limits by managers and across a peer group, such as exposure levels, VaR, and daily pro� t and loss. � ese can be used to quickly identify unusual be-haviour, one of the clearest early warning signs.

Each hedge fund manager has its own risk manage-ment team to scrutinise the decisions made by their port-

folio managers and traders whilst monitoring exposure limits. � e daily transparency from managed accounts allows FRM, as inves-tors, to more accurately determine whether this business area is oper-ating as e� ectively as it should.

� is o� en results in a stronger relationship between the underly-ing managers and FRM’s risk team. Remy Chaudhuri, head of Invest-ment Risk at FRM, is convinced: “Having access to managed ac-counts takes the investment risk process to an entirely di� erent level. Being able to see, each day, precisely where a manager’s pro� t and loss is generated, and how they are managing risk is invaluable – it can raise a � ag much more quickly. With a managed account invest-

ment it is not uncommon to receive a call from a manager explaining that they might exceed certain limits. We are in the driving seat for these discussions, and as such it can make for a very constructive dialogue.”

3. IMPROVED PORTFOLIO MANAGEMENTManaging a portfolio of hedge funds is as much about controlling exposures to asset classes and risk factors as it

MANAGING A PORTFOLIO OF HEDGE FUNDS IS AS

MUCH ABOUT CONTROLLING EXPOSURES TO ASSET

CLASSES AND RISK FACTORS AS IT IS ABOUT BUYING

AND SELLING HEDGE FUND MANAGERS

”

STEPHEN MCGOOHAN OF FRM, A DIVISION OF MAN GROUP, DISCUSSES THE BENEFITS OF HAVING A MANAGED ACCOUNT PLATFORM WITH HIS COLLEAGUES

MANAGED ACCOUNTS: AN ENHANCED INVESTMENT

PROCESS

Stephen McGoohan is head of Managed Account Lifecycle and Transparency at FRM, a division of Man Group. This includes the effective on-boarding of new clients and investment managers to the platform as well as implementing strategic projects impacting the offering. He previously worked for Deloitte and Arthur Andersen within the Financial Services Division.

006-007_HFMManagedAccounts2013_ManGroup.indd 6 18/07/2013 12:35

h f m w e e k . co m 7

m a n a g e d a c c o u n t s

is about buying and selling hedge fund manag-ers. Portfolio managers at FRM benefit from managed accounts as they can view daily expo-sure levels, both aggregated and specific. This enables our portfolio managers to monitor their gross and net exposures in line with their mandates, designed for and with end inves-tors. This, in turn, allows our investors to set increasingly bespoke constraints on their own portfolios.

Portfolio managers at FRM also gain com-fort from having a deeper understanding of how risk sensitivities are behaving in a crisis. Where possible, the additional clarity can help to speed up trading decisions on the portfolios, such as removing or hedging unwanted risks more quickly. Without managed accounts, the port-folio managers would have to rely on the lagged analysis provided in monthly risk reports.

Keith Haydon, chief investment officer at FRM, sees these benefits clearly: “Greater clar-ity on my portfolios can only ever be a good thing. I can fully understand our asset class exposures, and how these exposures change in different market environments. But most of all, when you have a more certain and precise understanding, we can change the portfolio holdings with conviction − whereas without we might not act at all.”

4. Improved fee negotIatIons Hedge fund managers are sometimes reluctant to offer discounts on fees in commingled funds, since any discount for one investor can sometimes be demanded by other investors in the fund. Very often the operational costs of administration, prime brokerage, custody and so on are non-negotiable.

When a large institutional investor, such as FRM, ap-proaches a hedge fund with a large sum of assets to invest into a separate managed account, fee discounts are easier to achieve. Often the managed account will have differenc-es to the manager’s commingled fund. It is then easier for the manager to agree to a lower fee structure – particularly if the scale of the investment means that management fees will be far in excess of the hedge funds business costs.

Michelle McCloskey, senior managing director at FRM, sees these lowered fees as a direct benefit to inves-tors: “One method to improve the net performance of an investment is to reduce fees paid. Reducing the operating cost of a hedge fund is a tangible benefit that some inves-tors might otherwise overlook. We are in the privileged position that, due to our size and our independence, we can negotiate hard on management and operational fees, with every dollar of discount benefiting the end investor.”

5. effIcIent InvestIng The correct structuring of managed accounts can bring investment benefits to the investor. Often hedge fund managers are not incentivised to run at the right level of risk. They know that many investors will size their asset al-locations based on expected risk. So if they double the risk of the product they may see outflows which will reduce management fees.

Using a managed account allows FRM to take the risk-scale decision away from the hedge fund. We are typi-cally investing sufficient levels of capital to be attractive to the manager regardless of the amount of leverage ap-plied. Often the manager will not notice or care about the difference – to them they are still running the same notional amount. It is actually FRM who has structured the leverage with the financing counterparties on the managed account.

Adam Singleton, client portfolio manager at FRM, ex-plains: “If I can get twice the leverage in a managed ac-count, I can allocate half the capital for the same expected return and risk. That leaves me with the other half to make other investments that might increase the expected return or hedge risks. Of course, we have to be careful not to use excess leverage, nor to apply leverage to less liquid assets – but used correctly it can be much more efficient than having some of your investment sat in cash at the manager and paying fees on it.”

In summary, the use of managed accounts is not just about providing operational benefits. We believe the in-vestment process materially benefits from using managed accounts, as they can ultimately improve the expected performance of an investment. Negotiation of enhanced fee structures and more efficient investing are the most immediate effects, since they directly influence the ex-pected return. But the additional benefits, discussed here, to research, risk management and portfolio management can result in improvements in the overall investment per-formance for our clients. By discovering more about the managers that we invest in due to managed accounts, we are enabled to make better informed decisions regarding our investments.

Keith Haydon summarises the need for managed ac-counts: “If an equity long/short manager told us that they were only able to see the value of their holdings at month end we would be shocked. Why should it be any different for us?” n

006-007_HFMManagedAccounts2013_ManGroup.indd 7 18/07/2013 12:35

Amundi Alternative Investments, a leading player

* Past performance is not indicative of future returns. (1) Source: HFMWeek Managed Account survey 2013 (2) Source: Alpha Institutional Investors Funds of Funds 50 Ranking 2013. (3) Including 21 managed accounts, 10 dedicated funds and 40 UCITS/Newcits funds. Source: Amundi Alternative Investments, as of March 31, 2013.

This publication cannot be reproduced or passed onto third parties, in whole or in part, without our permission. Published by Amundi Alternative Investments, SAS - Simplified Joint Stock Company with capital of 4 000 000 Euros - Registered office: 90, Boulevard Pasteur, 75730 Paris Cedex 15 - Portfolio Management Company registered with the ‘AMF’ (French Financial Markets Authority) under no. GP 01.044. Paris Register of Companies no.439 614 553.The information contained in this publication is not intended to be distributed or used by any person or entity in a country or court where such distribution or use would be contrary to legal or regulatory provisions or which would compel Amundi Alternative Investments, SAS or its affiliated companies, to comply with the registration obligations of the said countries. The data and information contained in this publication are supplied for information purposes only. Nothing in this publication constitutes an offer or request by any member of the Amundi Alternative Investments group, to provide advice or an investment service or to buy or sell financial instruments. The information contained in this publication is based on sources which we consider to be reliable, but we cannot guarantee that it is accurate, comprehensive, valid or relevant and it must not be considered as such for any purpose whatsoever.

absolute.amundi.com

Our commitment is Performance*.

21 years experience in hedge funds today 100 % onshore

regulated (AIF, UCITS)

Managed Account Platform N°6(1) and

Funds of Hedge Funds N°12(2) in global terms

About $10 Bn of AuM serving approx. 200 institutional clients(3)

Best Performing Specialist Fund of Funds

under $500m

Untitled-1 1 17/07/2013 11:55

H F M W E E K . CO M 9

M A N A G E D A C C O U N T S 2 0 1 3 M A N A G E D A C C O U N T S

For decades, banks have vigorously invested in � nding and hiring trading talent, which has greatly bene� ted their investment strategy. With increased regulation around the world, namely but not limited to the Alternative In-vestment Fund Managers Directive, the Basel

III Agreement and the Dodd-Frank Wall Street Reform and Consumer Protection Act, these � nancial institutions are facing the di� cult decisions of changing their invest-ment approach compounded with increased internal pres-sures from their portfolio managers who are seeking to spin o� and establish their own investment � rms.

� us, while many of these new managers choose to launch their own funds and ultimately dedicated accounts (fund of one, on the client’s balance sheet or via a man-aged account platform) to mitigate the di� erent invest-ment risks of concern to investors, others are opting from the start to use managed account platforms to establish their � agship funds. � is route allows them to reduce their time to market by leveraging the resources of the platform provider. � is outsourcing allows them to free their traders’ mindsets to focus on generating returns.

IMPACT ON INVESTORSIncreased regulation is welcomed by most investors as it increases governance and improves the per-ception of the industry. In fact, these changes provide sophisticat-ed investors with a great set of new opportunities from experienced teams. However, the decisions required to be made by pension fund managers and other asset owners must more than ever comply with strict internal policies in order to mitigate their � duciary duty and headline risks while fac-ing the increased scrutiny and governance of their board of directors. In other words, they are constantly question-ing their current structure’s capacity to mitigate the risks involved in hedge fund investments.

In many instances, talented portfolio managers have market recognition, allowing them to raise substantial as-sets at launch. Many of them, however, while possessing a renowned track record with their former employers, are facing di� culties in raising further capital. When excluding the current di� cult economic environment, the concerns

of newborn funds, such as infrastructure, operations and governance, remain a major obstacle. In today’s world, in-stitutional investors are looking for managers with a strong pro� le: ethical individuals, long track records, adequate operational infrastructures, seasoned risk managers as well as speci� c legal and compliance know-how.

BRIDGING THE GAPWith its open architecture, Innocap has the ability to o� er � exibility through multi-jurisdictional and multi-admin-istrative structures. Characterised by its specialised legal knowledge and its operational and risk management skills, Innocap facilitates institutional investment decisions via an enhanced investment framework. � e dynamic infra-structure o� ered provides investors with pre- and post-investment monitoring of di� erent risks.

As well as providing managers with a structure for their clients, we also, and most importantly, meet investors’ needs for a be� er con-trolled investment environment with oversight from an independ-ent third party. From a growth perspective, managers can also rely on our knowledge and bene� t from our regulatory and compliance ex-pertise when launching new funds in di� erent jurisdictions. Our vast experience allows them to pro-mote their strategies in di� erent areas of the world.

Asset owners will bene� t from experienced external resources, allowing them to alleviate the bur-den of internal setup and ongoing

management. When creating their own funds on the plat-form, they eliminate co-investor risk, have the option of white labelling their investments and bene� t from having a third party look a� er their investments. Innocap’s infra-structure o� ers them the tools to focus on investment de-cisions instead of worrying about operational issues. � ey can also rely on Innocap to be the daily watchdog of their portfolios. While not all investors require daily updates of what is happening in their accounts, they know that we are following their portfolios and will advise them of problem-atic situations or concerns as and when they occur.

In closing the gap between asset owners and money managers, Innocap o� ers comfort through � exibility and increased control. For this to be a successful long-term

INCREASED REGULATION IS WELCOMED BY

MOST INVESTORS AS IT INCREASES GOVERNANCE

AND IMPROVES THE PERCEPTION OF THE

INDUSTRY

”

FRANCOIS RIVARD AND JEAN BARAM OF INNOCAP DISCUSS THE CHANGING INDUSTRY ENVIRONMENT AND THE GROWING INTEREST IN MANAGED ACCOUNT PLATFORMS

A NEW ERA OF INFRASTRUCTURE NEEDS

Francois Rivard, president and chief executive officer, joined Innocap in 2013. He was previously head of the Financial Product Group at National Bank of Canada where he was responsible for the engineering and distribution of structured derivatives-based investments. During his 16 years in the industry, he has held various senior functions in capital markets and wealth management.

Jean Baram, managing director, investor relations, joined Innocap in 2007. In his current role, he co-heads the investor relations and business development team. After graduating in 2002, he held several functions within the Treasury Department of the National Bank of Canada.

009-010_HFMManagedAccounts2013_Innocap.indd 9 19/07/2013 15:35

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M a n a g e d a c c o u n t s 2 0 1 3 m a n a g e d a c c o u n t s

partnership, it is important for the setup to be beneficial for all parties, thus aligning the different interests of all those involved.

What are the major changes Innocap has been through In the last year?In its long history, Innocap has had several milestones and 2013 marks a new step in our development; starting with the nomination of François Rivard as the new president and chief executive officer of Innocap. With the expertise of our different teams coupled with Rivard’s vast experience in the asset management world, we are confident that Inno-cap has all the tools necessary to be an essential partner to institutional clients wishing to invest in hedge funds.

Since the beginning of the year, several positive and noteworthy events have taken place. Notably, we won a mandate with a large European institu-tion to set up dedicated structures in Ireland. This emphasizes our multi-jurisdiction mantra, expand-ing on our expertise of the European Union and Canadian jurisdictions. In addition, we added State Street to our two historical administrators, HedgeServ and Custom House, demonstrating our commitment to our multi-administrator approach. We foresee that this trend will continue in the upcoming year as clients are becoming more sensitive to the specifi-cities of each jurisdiction.

We have recently been attributed a sizeable mandate from a Canadian wealth manager for the onboarding of their new investment allocations. This represents the

first step in a new partnership, making us the privileged infrastructure of their future investments. This comes in addition to the strong existing relationships we have with Canadian pension plans for the onboarding of complex strategies in dedicated accounts.

Whereas the past few years have shown increased de-mand from asset owners to access more complex strategies

through managed accounts, the recent addition of simpler strategies demonstrates the industry’s ac-ceptance and understanding of managed account benefits throughout the investment spectrum. Asset owners favour a streamlined process of con-trolling and assessing their investment risks.

Innocap is also contemplating accessing the US market by the end of the year. Whereas our focus has been Canada and Europe over the past few years, we see increased interest from US asset owners to invest in hedge funds through managed accounts. We strongly believe that our geographi-cal position, coupled with our experience in ser-vicing some of the largest and most sophisticated pension plans would put us in a favourable posi-tion in the US.

“We are fortunate to have two parent compa-nies, BNP Paribas and National Bank of Canada,

believing in and supporting our business which is impor-tant to us and our clients. Throughout the years, we have built a world class organisation with a reputable interna-tional brand. We now need to build on that success and have other investors benefit from that infrastructure,” stated Innocap’s president and chief executive officer, François Rivard. n

we are confident that innocap has all the

tools necessary to be an essential partner

to institutional clients wishing to invest in

hedge funds

”

009-010_HFMManagedAccounts2013_Innocap.indd 10 19/07/2013 15:35

A different way of thinking, a different way of investing – we are innovating to perform.

welcome@man.com www.man.com

We don’t do conventional thinking. We don’t subscribe to conventional wisdom. You don’t become one of the world’s leading

alternative investment managers by following the herd. You get there by deploying dynamic, innovative investment strategies.

And you get these by employing quick, agile thinkers. In other words, people who think outside the box.

Conventionalthinking has its limitations

Alternative investments can involve significant risks and the value of an investment may go down as well as up. UK/13/0401-P

Untitled-1 1 17/07/2013 11:53

Bespoke Portfolio Management www.linearinvestments.co.uk

8-10 Grosvenor Gardens London SW1W 0DH 0203 603 9801Linear Investments Limited Regulated by FCA Registered in England and Wales No. 7330725

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3 Individualised Service & Support

3 Understanding of our Client’s goals

3 Full Transparency

3 Vision to Inspire and think outside the box

3 Service, Innovation and Proven track record

3 Regulated by the FCA

Untitled-2 1 19/07/2013 11:51

H F M W E E K . CO M 13

M A N A G E D A C C O U N T S 2 0 1 3 F U N D S E R V I C E S

As institutional investors seek greater trans-parency into their alternative investment portfolios and managers seek alpha from a broader range of strategies within a single portfolio, managed accounts have seen sig-ni� cant growth and interest. As their popu-

larity increases, managed accounts are not immune to the e� ects of the changing regulatory environment and as a consequence they are demanding far more from their ad-ministrators. Kristin Castellanos of Deutsche Bank Fund Services-Alternatives speaks to HFMWeek about these developments and what the future holds for managed ac-count service providers.

HFMWeek (HFM): How has the managed account space developed in the past year?

Kristin Castellanos (KC): It’s important to distinguish between managed accounts and managed account platforms. � ere has de� -nitely been an increase in managed accounts, although not at the pace some had predicted initially – they are becoming more commonplace to address institutional demands for added liquidity and transpar-ency. Interestingly, the makeup of bene� cial owners of managed accounts has shi� ed from high-net-worth clients to institutional investors. As managed accounts and platforms share operational challenges, we see many managers outsource back and middle o� ce functions to institutional admin-istrators such as Deutsche Bank, who have sophisticated technology platforms to handle the high frequency trading and inves-tor activity resulting from these structures.

HFM: Have Deutsche Bank’s services to managed ac-count platforms grown over this time?

KC: Yes, we have seen growth in terms of clients looking to establish managed accounts. Many alternative investment managers seek to generate alpha from an increasingly di-verse universe of strategies, asset classes and geographic

locations. I think it’s more common these days for man-agers to launch managed accounts and managed account platforms that can capitalise on liquid and illiquid oppor-tunities in a single platform, for example o� ering hedge fund strategies with less liquid securities such as credit and private equity and real estate holdings. � ere has also been more demand for our collateral management services as platforms invest in more over-the-counter (OTC) prod-ucts.

HFM: Has Deutsche Bank had to adapt its o� ering in light of the investor demand for increased liquidity and transparency?

KC: Absolutely. In the past 18 to 24 months, Deutsche Bank has made signi� cant investments in our operating

platform because the servicing re-quirements are higher. Funds may need enhanced liquidity and trans-parency reporting that impacts the net asset value (NAV) frequency in the portfolio, for example. We have changed our operating model to support such high frequency and daily indicative NAV requirements as well as other needs managers may have due to investor demands.

HFM: What impact has the changing regulatory environ-ment had on managed accounts platform administrators?

KC: Regulatory reporting, such as Form PF, CPO-PQR and the upcoming Alternative Invest-ment Fund Managers Directive (AIFMD) requirements have de� -

nitely had an impact. Our systems have been developed to aggregate and calculate large volumes of data to auto-mate and streamline these reporting obligations. Without investing in � exible administration architecture, it would be very di� cult to respond to these changing regulatory and increasingly bespoke client requirements. AIFMD reporting is particularly complex and poses additional op-erational di� culties as the reporting deadline is 30 days post quarter end versus 60 days for quarterly Form PF � l-ers. � e shorter preparation and validation period means

IN THE PAST 18 TO 24 MONTHS, DEUTSCHE BANK

HAS MADE SIGNIFICANT INVESTMENTS IN OUR OPERATING PLATFORM

BECAUSE THE SERVICING REQUIREMENTS ARE

HIGHER

”

KRISTIN CASTELLANOS OF DEUTSCHE BANK FUND SERVICES-ALTERNATIVES SPEAKS TO HFMWEEK ABOUT THE GROWING ROLE OF ADMINISTRATORS IN THE MANAGED ACCOUNT SPACE

ADMINISTRATION IS KEY

Kristin Castellanos is the head of product management for Deutsche Bank Fund Services-Alternatives, where she is responsible for defining, building and delivering solutions for the alternative investment industry. Prior to joining Deutsche Bank in 2009, she spent over 10 years working for alternative investment firms in New York.

013_014_HFMManagedAccounts2013_DB.indd 13 19/07/2013 15:36

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M a n a g e d a c c o u n t s 2 0 1 3 f u n d s e r v i c e s

you need sophisticated systems to quickly transform the required information into the correct format. Of course, one of the main AIFMD provisions is the requirement for a manager to appoint a single depositary of an alternative investment fund. As Deutsche Bank has been providing depositary services for many years, we look at this as a competitive advantage against some of our non-bank ad-ministrator peers.

HFM: What benefits can Deutsche Bank Fund Servic-es-Alternatives offer to managed account managers?

KC: Deutsche Bank has invested in a consolidated plat-form, supporting high degrees of automation and direct data processing. Every day, we process client trade and prime brokers’ data to support daily NAVs. We offer daily collateral monitoring and break resolution, providing comprehensive performance reporting to help them man-age their portfolios. Some of our managed account plat-form clients have moved from monthly to weekly and in some cases daily dealing on their platforms, in response to investor demand. Demand for our collateral management and full middle office services is also growing. We can pro-vide the full value chain of services for managed accounts on a single platform – a truly world-class offering.

HFM: Is it important to frequently update your tech-nology to keep up with the changing regulatory envi-ronment?

KC: Absolutely; as we look forward to the changing regu-latory environment we have to make sure we have a keen eye towards the developments we need to implement for our systems. It’s also important to meet evolving client de-mands. We’re increasingly being asked to provide bespoke analytics, support regulatory obligations and provide pre- and post-trade compliance reporting. As global regu-lators focus on understanding the risks posed by alterna-tive investment managers to the financial system, we are the single source of information for our hedge funds and managed accounts in this multi-prime broker world. As we have an overarching view of the transactional and position data for a managed account, clients are increasingly look-ing to us to help with their reporting requirements.

HFM: What should managers look for in a managed account administrator? What makes Deutsche Bank Fund Services stand out?

KC: As administrators, we are no longer simply the hedge fund’s outsourced back office; we are now an extension of an investment manager’s internal operations and are being asked to provide analytical tools, data aggregation and cli-ent support for reporting and compliance functions. It is imperative to choose an administrator that can leverage highly automated systems and flexible reporting architec-ture to provide these services across products, strategies, counterparties and geography. Deutsche Bank has im-plemented several solutions in the past year which make us stand out. Also important when selecting an adminis-trator is to understand their product road map. Are they making investments in new technology? Is their platform

flexible? Can they easily bolt on emerging value-added services? Do they have a dedicated product management team monitoring the changing regulatory landscape and investor reporting best practices? Do they have a compre-hensive service offering to assist in my regulatory require-ments? I’m very proud to say that we can answer yes to each of these questions at Deutsche Bank.

We have recently developed a collateral services prod-uct, offering an end-to-end solution for the collateral management of OTC derivatives transactions, which are becoming increasingly important to hedge fund managers. We can provide daily independent pricing, portfolio rec-onciliation, margin call management, dispute resolution and daily collateral reporting. This helps clients mitigate risks by ensuring that counterparty exposure is adequately collateralised and verified. This is an important comple-ment to our already comprehensive product suite, ad-dressing the growing needs of managed account managers.

Going forward, we view the middle office space as the next generation of administration for institutional inves-tors. For those that manage large multi-asset hedge fund portfolios, managed accounts or even private equity and real estate funds, we can provide trade capture and net-ting and aggregation functions and can provide rule-based trade amendments for client approval. Our service goes through the whole middle office value chain, including trade execution and settlement. Account rebalancing, liquidity and analytics reporting are particularly impor-tant for managed accounts. Back office services have been commoditised and as our client base demands more val-ue-added services, our middle office product will set us apart from our competition.

HFM: What challenges and opportunities does the managed accounts space face in the next 12 months?

KC: Managed accounts have grown in popularity over the past few years; seen as a more effective model for the man-agers who get it right, they are viewed as a way to increase market share. Technology is a big challenge. The technol-ogy platform you rely on should be flexible enough to ad-dress growing investor demand. As strategies change, you need a nimble admin partner who can address your dif-ferent and bespoke needs, while adhering to the highest operational control standards. Additionally, this new era, characterised by Fatca and the AIFMD, presents addition-al considerations in terms of complexity and management expense ratios. We expect to see some consolidation of as-sets in the managed account space which should benefit organisations such as Deutsche Bank, as we have built cru-cial operational efficiencies into our systems, which is key to maintaining the growth and margins of this business. n

we can provide the full value chain of services for managed accounts on a single platform – a truly world-class offering

”

013_014_HFMManagedAccounts2013_DB.indd 14 19/07/2013 15:37

ABOUT LUMALUMA provides hedge fund investors standardized access to a broad range of hedge fund managers, across multiple strategies. LUMA offers value-added services to both investors and managers, including operational controls, risk management, distribution and turn-key fund solutions.

JULY 2013

Greg TroccoliGreg.Troccoli@lumasolutions.com780 Third Avenue, 32nd floor, New York, NY 10017

FOR MANAGERS• Complete fund set-up, including legal documentation,

allserviceprovidersandfinancingagreements

• Review of daily administrator position reconciliation

• Monitoring of regulatory and investment guidelines

• Negotiationandmonitoringoffinancingagreements

• Management of service provider relationships

• Access to global fund distribution capabilities through various third-party entities

FOR INVESTORS• Single set of documentation and operational

procedures to access multiple managers

• Risk reporting through a web based secure portal

• Manager independent cash and asset controls, as well as investor friendly governance

• Position level and style drift monitoring

• DailyestimatedandperiodicfinalizedNAVswithindependent pricing

• Multi-jurisdiction capabilities, including both Cayman and Luxembourg, private and public, vehicles

6ROUTEDETREVES|L-2644SENNINGERBERG|LUXEMBOURG|TEL+352462685532|FAX+35226340152|WWW.LUMASOLUTIONS.COMThese sample reports are for illustrative purposes and should not be relied upon. The opinions on this page have been selected by LUMA. No guarantee is given as to the accuracy, completeness and reasonableness of such opinions. All opinions and views expressed constitute judgements as of the date of this presentation and may change any time.

Style Drift Monitoring - Net Equity

Historical Analysis - Portfolio Allocation

Style Drift Monitoring - Net EquityStyle Drift Monitoring - Net Equity

Detailed Performance Analysis

Copyright © 2013 LUMA. All rights reserved

Copyright © 2013 LUMA. All rights reserved

Daily Performance Reporting

Copyright © 2013 LUMA. All rights reserved

Weekly Risk Review

WEEKLY RISK SUMMARY

AUM ($mm) Equity – 10% (% of NAV)

Interest Rate +100 bps (% of NAV) Spread +10% (% of NAV)

Equity Vega (bps) Interest Rate Vega (bps)

Long Leverage (% of NAV) Short Leverage (% of NAV)

Top 10 Long Exposure (% of NAV) Top 10 Short Exposure (% of NAV)

Values at Risk (%)

Manager 1

2010-08-02 39.4

0.1% -0.3%

0.0 2,444.7% -2,453.1%

1,658.7% -1,674.0%

3.3%

2010-07-26 23.8

0.1% -0.2%

0.0 3,328.2% -3,277.6%

2,483.4% -2,345.4%

5.6%

Hist. Average 15.4

0.1% -0.2%

0.0 4,083.2% -4,003.7%

3,219.6% -2,711.1%

4.1%

Manager 2

2010-08-02 80.1

-0.9% 0.0%

15.2 253.1%

-335.3% 173.5%

-274.4% 9.1%

2010-07-26 59.1

-0.7% -1.0%

-8.5 266.1%

-448.4% 203.6%

-366.7% 10.7%

Hist. Average 38.3

-0.8% -0.7%

5.4 178.4%

-238.3% 147.7%

-216.6% 11.2%

Manager 3

2010-08-02 86.4

-5.4% -1.0%

-0.4% 0.0

0.9 150.5%

-42.6% 68.9%

-41.0% 14.4%

2010-07-26 86.1

-7.6% -1.0%

-0.4% 0.0

0.8 166.9%

-40.0% 76.0%

-36.7% 15.8%

Hist. Average 99.5 -4.9%

-0.6% -0.4%

0.4 -0.2

158.4% -36.1%

72.3% -31.2%

15.7%

Manager 4

2010-08-02 44.8

2.7%

113.3%

-113.3% 71.8%

-95.7% 7.2%

2010-07-26 44.7

2.4%

110.1%

-110.2% 70.1%

-93.0% 6.1%

Hist. Average 30.4 1.0%

96.2%

-98.3% 69.0%

-81.4% 9.2%

Manager 5

2010-08-02 108.4

1.0% -3.2%

-2.8% 2.8

-0.1 114.2%

-27.1% 31.8%

-27.1% 3.2%

2010-07-26 107.4

1.2% -2.6%

-2.4% 4.0

-0.2 115.9%

-14.3% 42.9%

-14.3% 5.1%

Hist. Average 70.5 2.2%

-1.9% -2.5%

3.3 -0.7

84.2% -15.9%

38.3% -15.9%

3.2%

Manager 6

2010-08-02 120.6

0.1% -2.6%

12.2 97.2%

-90.9% 48.8%

-90.9% 8.2%

2010-07-26 120.4

-0.1% -2.7%

12.4 96.8%

-90.9% 48.6%

-90.9% 8.2%

Hist. Average 127.9

-1.8% -1.9%

12.7

92.6% -80.7%

50.7% -80.7%

6.4%

Manager 7

2010-08-02 26.3

-2.3%

1.0

50.6%

-39.0% 30.7%

-29.5% 3.3%

2010-07-26 26.4

-3.0%

0.9

51.6%

-36.6% 33.1%

-27.4% 4.2%

Hist. Average 35.3 -2.1%

0.9

61.3%

-49.5% 38.8%

-34.7% 4.4%

Manager 8

2010-08-02 84.9

-2.2% 0.1%

0.1 2,899.2% -3,028.2%

2,267.1% -2,555.3%

6.0%

2010-07-26 63.9

-1.8% -1.8%

0.6 3,563.6% -3,676.7%

2,942.4% -3,206.3%

7.5%

Hist. Average 95.7

-0.4% 0.3%

1.2 3,584.4% -3,651.6%

2,678.9% -2,822.3% 22.7%

DAILY PERFORMANCE ESTIMATES

Managed Account

Main Strategy

Date Daily

MTD QTD

YTD ITD

AUM ($mm) Inception Date

Manager 1

FixedIncomeStrategy

2011-01-14 0.06%

0.11% 0.11%

0.11% 1.47%

55.8 2010-04-01

Manager 2

MBSStrategies

2011-01-14 -0.01% 0.64%

0.64% 0.64%

11.59% 84.3

2010-01-01

Manager 3

Merger Arbitrage

2011-01-14 0.03%

0.58% 0.58%

0.58% 22.10%

84.5 2009-06-01

Manager 4

Closed-EndFundArbitrage 2011-01-14 -0.27%

0.43% 0.43%

0.43% 15.23%

59.3 2009-08-01

Manager 5

Asset-BackedSecurities 2011-01-14 -0.05%

1.15% 1.15%

1.15% 17.85%

133.1 2010-01-01

Manager 6

Asset-BackedSecurities 2011-01-14

0.03% 0.34%

0.34% 0.34%

37.66% 132.6

2009-08-01

Manager 7

FundamentalMNEquity 2011-01-14 -0.13%

1.85% 1.85%

1.85% 6.24%

28.5 2010-01-01

Manager 8

FundamentalMNEquity 2011-01-14 -0.06%

-0.27% -0.27%

-0.27% -0.15%

41.9 2010-10-01

TOTAL: 620.0

Sharpe Ratio 1,3,4

1.35

-0.04

0.00

0.49

-0.5

0.0

0.5

1.0

1.5

Annu

aliz

ed S

harp

e

RegalFu

ndsMan

agement

PtyLtd

HFRIEq

uityMar

ketNeutr

alIndex

MSCIAC

AsiaPac

ificIndex

Eurekahe

dgeAsia

nHedge

FundIn

dex

Fund

Distribution of Monthly

Returns 1

,3,6

0

2

4

6

810

1214

<5

-5to-4.75

-4.75to-4.5

-4.5to-4.25

-4.25to-4

-4to-3.75

-3.75to-3.5

-3.5to-3.25

-3.25to-3

-3 to

-2.75

-2.75to-2.5

-2.5to-2.25

-2.25to-2

-2 to

-1.75

-1.75to-1.5

-1.5to-1.25

-1.25to-1

-1 to

-0.75

-0.75to-0.5

-0.5to-0.25

-0.25to0

0to0.25

0.25to0.5

0.5to0.75

0.75to1

1to1.25

1.25to1.5

1.5to1.75

1.75to2

2to2.25

2.25to2.5

2.5to2.75

2.75to3

3to3.25

3.25to3.5

3.5to3.75

3.75to4

4to4.25

4.25to4.5

4.5to4.75

4.75to5 >5

Mon

thly

Per

iods

Return Range (%)

Percentage Profitable Months 1,3,4,6

Outperformance 1,3,565%

65%65%

0%

20%

40%

60%

80%100%

% o

f Mon

ths

HFRIEq

uityMar

ketNeutr

alIndex

MSCIAC

AsiaPac

ificIndex

Eurekahe

dgeAsia

nHedge

FundIn

dex

Up Market

73% 64%

71%

0%

20%

40%

60%

80%100%

% o

f Mon

ths

HFRIEq

uityMar

ketNeutr

alIndex

MSCIAC

AsiaPac

ificIndex

Eurekahe

dgeAsia

nHedge

FundIn

dex

Down Market

72%

62%

56%

61%

0%

20%

40%

60%

80%

% o

f Mon

ths

SSHP – RegalM

arketNe

utralFu

nd

HFRIEq

uityMar

ketNeutr

alIndex

MSCIAC

AsiaPac

ificIndex

Eurekahe

dgeAsia

nHedge

FundIn

dex

Fund

Arnaud MassenetArnaud.Massenet@lumasolutions.com5SavileRow,London,W1S3PD,UnitedKingdom

For Additional Information

Copyright © 2013 LUMA. All rights reserved

Untitled-2 1 19/07/2013 11:41

With $11bn assets under management*, only Lyxor’s Managed Account Platform gives access to over 100 managers, selected among the best in the industry. With the addition of weekly liquidity**, unrivalled transparency and sophisticated monitoring features, you can invest with confidence. We offer investors much more than a platform, we offer our unrivalled choice, quality and experience.

THE FIRST TIME THE SAME MANAGED ACCOUNT

PLATFORM HAS WON 7 AWARDS IN ONE YEAR.

THINK HEDGE FUNDS, THINK LYXOR

SHARING THE SUCCESS7 AWARDS IN 2012 – THANK YOU FOR YOUR CONTINUED SUPPORT

* As at 31st March 2013. ** 95% of the funds on Lyxor MAP offer weekly liquidity.

This material is not intended for use by or targeted at retail customers. It is neither an offer, nor a solicitation, advice or recommendation for the purchase or sale of any securities, financial instruments or investment solutions in any jurisdiction, including the United States, or to enter into any transaction. Securities or financial instruments may not be offered or sold in any jurisdiction, including the United States, absent registration or an exemption from registration under applicable regulations. Lyxor Asset Management S.A. is a firm authorised by the French Autorité des Marchés Financiers under the number GP98019.

C52737 MAP HFM 273x203.indd 1 07/05/2013 18:25Untitled-1 1 17/07/2013 11:55