Aspen Partners' Aspen Diversified Fund recently made the switch from a fund that primarily made allocations to limited partnerships to one that now invests in managed accounts.
“We have all but three of allocations made to managed accounts,” says Aspen’s co-chief investment officer Paul Morin (left). “In LPs, you can’t lose more than your original investment so that protection is there. Theoretically, in managed accounts your exposure is much greater. That’s certainly a concern for investors. But even with that, the benefits of managed accounts can overcome that.”
Alternative strategies are complex, Morin says, and access to the underlying trades is often hard to come by. The transparency inherent in separately managed accounts gives Aspen investors a greater degree of comfort. Specific to limited partnerships, the manager has custody of the assets within the fund, which could lead to questionable behavior on the part of the manager. With managed accounts, the manager has discretion to invest the assets, but not direct access, which Morin says is a significant benefit.
He also notes in larger funds that are less liquid, influential investors might receive preferential treatment.
“Someone else could get out before you and this is especially critical in a market downturn,” he says. “What’s left to often is the toxic waste which you get stuck with. Also, expenses and costs could be high, and smaller investors get hit with a higher percentage.”