Separately managed accounts have for years outpaced mutual funds in capturing assets from affluent investors but numerous operational and regulatory challenges complicate the prospect of integrating traditional hedge funds into portfolios of long-only investment strategies.
But recent the recent surge of interest in registered hedge funds of funds may provide a solution to the SMA providers dilemma.
SMA providers have also resisted calls to integrate hedge funds because many alternative investments lack sufficient transparency to generate timely performance reports. Minimum investment requirements for alternative investments also discredit many prospective SMA customers with less than $1 million to invest.
But firms like Merrill Lynch are considering ways to work around the challenges of offering hedge fund products in SMA accounts because investors are increasingly clamoring for equity exposure with added protection.
