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Generating returns through better relationships: How managed custody accounts benefit managers and investors
Journal of Securities Operations & Custody,
8
(4),
298-305
(2016)
Abstract
Institutional investors are under significant pressure to maximise returns. To that end they have focused on reducing fees and consolidating their portfolios according to the best ideas of their best managers. A few pioneering US public pension plans and public university endowments have been early adopters of Managed Custody Accounts (MCAs) in efforts to maximise their ability to participate in the best new products and control costs and fees. An MCA creates a platform through which an investor can quickly and nimbly invest across any of an investment manager’s funds, products and strategies. Because fees and expenses are negotiated at the platform level on an aggregate assets under management basis, parties are able to create an efficient investment process with a fee structure that motivates the manager and investment team, encourages investors to consider all of the manager’s products, and has the effect of maximising the investor’s investment levels with a manager. This efficiency also allows public investors to react quickly to managers’ new products as other legal terms are built into the MCA agreement at the onset of the investment relationship. This paper will discuss the typical investment process of public investors, from manager selection to funding of new traditional products, contrasting it to the MCA process, and highlighting the benefits that MCAs provide to managers and investors alike.
Keywords: managed accounts; pension plan; alternative investments; expenses; returns; endowments; university
The full article is available to subscribers to the journal.
Author's Biography
Thomas A. Hickey Iii as Chair of Foley & Lardner, LLP Fund Formation & Investment Management Group, leads a dedicated team of lawyers who advise clients on the structuring, formation and ongoing management of various private investment funds, including venture capital funds, private equity funds, fixed income funds and hedge funds, and their management companies. Mr Hickey, who drafted the original Master Custody Account, represents a wide variety of institutional investors, especially public employee pension plans, Employee Retirement Income Security Act (ERISA) of 1974 pension plans established in accordance with the US and endowment plans. Key to this advice is Mr Hickey’s 40-plus years of experience with these investors and his knowledge of each investor’s statutory obligations, ordinances and specific policies.
Stuart E. Fross is a partner and business lawyer with Foley & Lardner LLP, where he concentrates his practice on securities laws and regulations (including the Alternative Investment Fund Managers Directive (AIFMD)), as part of the Private Equity & Venture Capital, Transactional & Securities and International Practices. Mr Fross’ main focus is investment managers and pooled investment vehicles organised in the USA and off-shore. Mr Fross has extensive experience in representing investors in private funds, and has negotiated numerous master custody account agreements.
Gustavo Resendiz is a senior counsel with Foley & Lardner LLP focusing on the formation of private investment funds. Mr Resendiz advises fund managers and sponsors and institutional investors, including university endowments, public employee pension plans and ERISA plans in connection with private fund and other alternative investments. Mr Resendiz has experience negotiating separately managed account agreements, secondary sales and other investment transactions. Prior to joining Foley, Mr Resendiz was the general counsel and chief compliance officer of a US Securities and Exchange Commission (SEC) registered global investment management firm with a regulated UK subsidiary.
Kenneth C. Nee is an associate and business lawyer with Foley & Lardner LLP. He is a member of the firm’s Private Equity & Venture Capital Practice and regularly advises institutional investors including public employee pension plans and endowment plans in connection with investments in private equity funds, real estate funds and various alternative investments. Mr Nee also has experience in the formation and ongoing management of private investment funds. Prior to joining Foley, Mr Nee began his legal career as a paralegal, supporting attorneys throughout all phases of complex commercial litigation.
