Fund of Hedge Funds

>>Fund of Hedge Funds
Fund of Hedge Funds 2019-07-25T14:34:04-05:00

Fund of Hedge Funds (FoHFs) are an important channel into hedge fund investing, as they offer small hedge fund investors instant diversification and investment monitoring that they may not otherwise be able to achieve through direct hedge fund investing. However, multiple layers of fees have historically discouraged some investors from pursuing this type of investing structure, regardless of the value it may provide.

As a FoHFs manager, you are under pressure to reduce the costs related to management of assets for your clients. An Ultimus Dedicated Managed Account (DMA) may be the solution, as this structure provides the exact controls, services, and reporting required to manage your investments in a cost-efficient and scalable way. Importantly, a DMA gives you the flexibility to negotiate strategy customization, investment guidelines, and management and performance fees with each underlying fund manager, which could potentially result in a reduction in investing costs. The structure also improves investment control and transparency, and provides the liquidity your investors may be demanding.

Through a DMA, the FoHF can be the sole investor, so you have full ownership and control over the account. You select preferred trading advisers, custodians, Prime Brokers (PBs) / Futures Commission Merchants (FCMs), and other service providers, and your account and each underlying fund are linked together only through an Investment Management Agreement. This structure provides the exact controls, services, and granular reporting you need to make more informed investment decisions.

The DMA Structure
Ultimus’ comprehensive DMA solution provides:

Before you sign as a client with Ultimus, we review with you our DMA structuring options – co-mingled managed accounts or separate, segregated LLCs with managers. You ultimately determine, with the guidance of your legal counsel, the structure that best suits your requirements.

We provide sample templates for legal documents, which allow you to see how investment management agreements can be drafted, along with the investment company documents. Please note: we do not provide legal advice, only examples of documents. You should consult your legal counsel for drafting any agreements.

Once you have selected your custodian/PB)/FCM and managers, we coordinate the opening of your accounts by completing the applications for your signature, gathering all the required information, testing connectivity and requirements, and more. We are not, however, a party to the agreements.

We provide the operational infrastructure for your DMA by utilizing our administration teams and technology. We utilize our systems to collect trade data, reconcile to custodian/PB/FCM, value the portfolio, and calculate portfolio performance.

When you become an Ultimus DMA client, we coordinate with you to determine the specific guidelines by which you wish to monitor your managers. After receiving this direction from you, we utilize an internal, proprietary database to perform guideline monitoring, which is provided on a T+1 basis, not ex-ante.

We provide our DMA clients with standard risk measures on individual managers including Value at Risk (VaR) analysis, stress testing, and scenario analysis. We conduct scenario analysis on existing holdings, not on an ex-ante basis, with pre-defined scenarios (such as 9/11, ‘87 market crash, and flash crash), but you may also request other scenarios. Stress testing is completed on pre-determined factors including a percentage move in markets and volatility. All reporting is provided on existing holdings and on a T+1 basis. You should also construct your own risk monitoring and should not rely exclusively on our monitoring.

We provide you reporting on a daily basis through a variety of delivery methods. Our proprietary daily reporting package includes PDFs that summarize performance, risk, and guideline analytics. We also have a proprietary portal that allows you to see daily balances, exposures, and performance.

Our technology is seamlessly integrated between our DMA platform and administration services, thus allowing us to offer you robust and powerful data that can customized to your exact needs.

Let’s Talk

Contact a member of our team.