In 2008, the financial industry particularly the hedge fund took a beating after a well-known financier and investor was charged for fraud. Now considered one of the largest Ponzi-based operations ever planned, the investment vehicle has managed to spoil the dreams of many investors who simply want to earn a huge return of investments at the expense of their lifetime savings. According to reports, the scam has managed to squeeze at least $65 billion of investors’ money. But for many individual investors, it isn’t just about the money earned but also the trust and confidence in hedge funds. With a diminished confidence in hedge funds, investors and consumers used the experience as motivation to find alternative investing options that offered a secure platform and investing environment. This is where the Separately Managed Accounts or SMAs come into the picture. Separately Managed Accounts provide conditions that the traditional investment vehicles cannot offer- transparency and control.
SMAs boost transparency and control
Transparency and control are some features that were no longer evident on the doomed investment vehicle promoted by Madoff. Majority of the investors are clueless on how the investing decisions are made, and were not given much control of their finances especially after they have collectively requested at least $7 billion, way over the amount that the principal can cover. This is not the case with SMAs since this investing option allows individualized approach to investing where the investing preferences and decisions of the investor are taken into account. There’s transparency in SMAs since there are multiple participants in the fund and the investment process, thus limiting the risk for fraudulent and questionable transactions to occur.
The fund also calls for the participation of a custodian (or multiple custodians) to complete the clearing and management of investments. Also, the asset manager is expected to collaborate with the investor to plan out a campaign or strategy that’s based on a personal investing strategy. To individual investors looking for a safety net in investing, the SMAs serve as promising investment vehicles which illustrate a critical investment principle- transparency and control are as important as the expected profit.