Segregated Accounts
Segregated accounts hold client assets separately from a fund’s operating capital, enhancing transparency, control, and investor protection.
What Are Segregated Accounts?
Segregated accounts are financial accounts in which client assets are kept completely separate from the operating capital of a fund, brokerage, or financial firm. This structure ensures that client money is never mixed with the company’s own funds, offering a higher level of safety, transparency, and regulatory compliance.
How Do Segregated Accounts Work?
When a client invests or deposits money, those funds are transferred into a dedicated segregated account distinct from the firm’s own accounts. Each segregated account is traceable and individually managed, allowing clients to monitor their assets and ensuring that, in the event of company insolvency or bankruptcy, client funds remain protected and are returned to their rightful owners. This setup is required by regulators in many jurisdictions and is common in asset management, brokerage, fintech, and insurance.
Why Are Segregated Accounts Important?
Segregated accounts offer several key benefits:
Investor protection: Client assets are shielded from potential losses, fraud, or misuse by the company.
Transparency: Clients can clearly see how their funds are handled and track their investments.
Control: Investors can tailor mandates, liquidity preferences, and risk parameters, with individualized tracking of exposures, drawdowns, and risk metrics like VaR or Sharpe Ratio.
Reduced counterparty risk: In times of market stress or company failure, segregated accounts ensure assets are not subject to claims by company creditors.
Regulatory compliance: Many financial authorities require segregated accounts to protect client interests and maintain industry integrity.
Example: Segregated Accounts in Practice
A hedge fund manages investments for multiple clients. Instead of pooling all assets together, it maintains a segregated account for each client. This allows for tailored investment strategies, direct oversight, and ensures that if the fund faces financial trouble, each client’s assets remain safe and accessible.
When Should Segregated Accounts Be Used?
Segregated accounts are especially relevant:
During onboarding and mandate creation for institutional clients or allocators
When regulatory rules require strict separation of client and company funds
For investors seeking maximum transparency, control, and protection of their capital
In situations where individualized performance, risk, and liquidity tracking are essential
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