Investment managers (IMs) seeking new European markets can launch a fund on either a hosted platform or as a standalone structure. Davy Global Fund Management’s Luxembourg CEO Stephen Roberts and director Annette Stack explain the key points to consider when making this decision.
A third-party hosted platform is an umbrella fund structure operated by either a management company (ManCo) or Alternative Investment Fund Manager (AIFM). Third-party hosted platforms can support both UCITS and AIFs and have become increasingly popular. The platform comprises multiple sub-funds, each with segregated liabilities and operating its own investment strategy.
An IM considering a platform approach will likely want to ensure there is no diminution in its relationship with its underlying investors or to its brand value. Setting up the structure with the IM as an appointed delegate of the platform maintains the IM’s direct link to the investment strategy of its sub-fund. This ensures there is no dilution of the IM’s brand in terms of naming convention, marketing strategy or investment story. It also ensures that the underlying investors identify directly with the IM and view the platform simply as supporting operational infrastructure.
This infrastructure is in turn supported by service providers, independent from the IMs, that undertake the fund administration, depositary and audit functions. Hosted platforms can streamline the setting up of funds by pre-negotiating agreements with service providers. This creates a turnkey solution that IMs can “plug into”, with clear speed-to-market advantages.
Hosted platforms offer economies of scale and operational and legal efficiencies and IMs can leverage the knowledge and expertise of the platform team. Another advantage is that the platform is accountable to the regulator, either directly or indirectly via its ManCo, for ensuring the compliance and governance of the platform. This lets IMs focus on what they do best – investment management and managing investor relationships – while the platform team, supported by the service providers, ensures the platform is operating within regulations and industry best practices.
Hosted platforms have several limitations, including a restricted choice of service providers. For example, the administrator, depositary and auditors are selected at umbrella level. The IM often only chooses the sub-distributor, broker and counterparties for trading. The IM has no representative on the board – which sits at umbrella level – and restricted input to the prospectus and other regulatory documents.
One of the main reasons IMs choose a standalone platform is that the manager’s corporate culture favours in-house control of funds over outsourcing. A standalone platform might also be appropriate if the IM plans to launch multiple sub-funds with significant assets, which would make a standalone platform economically viable.
The IM would need to ensure it has the financial resources and expertise to operate the platform. It would need to assess the costs and benefits of a proprietary platform, most notably the resource and time commitments involved. These would include hiring directors with the optimum mix of skills and sourcing suitable service providers.
Choosing the right management company
Selection of a ManCo is a vital decision whether you are looking for a hosted or standalone platform. The ManCo must have the depth and breadth of expertise to support the IM in complying with regulations and best practices. It’s also important to assess the ownership structure of the ManCo to ensure it has the substance, resources and balance sheet capital to meet the expectations of regulators and investors. Importantly, it is the ManCo’s capital that is assessed for adequacy, irrespective of whether the IM’s fund is on a hosted or standalone platform.
Davy Global Fund Management works with investment managers seeking to establish a European footprint through hosted or standalone platform solutions in both Luxembourg and Ireland. Learn more www.davygfm.com/platforms
Disclaimer: This article is not investment advice or a recommendation and no investment decision should be made on the basis of it. No recipient should treat any of the contents as regulatory or tax advice or rely on it to meet its obligations. The information contained herein does not purport to be comprehensive. It is strictly for information and discussion purposes only. Davy Global Fund Management disclaims all liability in respect to actions taken or not taken based on any or all the contents of the article.
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