Setting up a Common Contractual Fund can be complex and costly. In 2018 Veritas Asset Management partnered with AMX to launch a version of their existing tax-efficient fund structure. Antony Burgess, Managing Partner, shares the reasons for this and how working with AMX has added value to their clients.
Since 2003, Veritas Asset Management has focused on delivering long term real returns to clients, protecting and growing the purchasing power of clients’ capital over time. Veritas has $20bn in assets under management and joined the AMX platform in May 2018.
Veritas Asset Management chose AMX to provide clients with a tax-efficient Common Contractual Fund (CCF), mirroring their own proprietary fund. We spoke to Antony Burgess, Managing Partner, to find out why Veritas chose AMX when looking to offer increased flexibility for their clients.
1. Your AMX CCF fund is nearly two years old – what benefits has working with AMX delivered in that time?
An important benefit is flexibility. Most clients use more than one manager and would like to access a range of styles that whilst maybe available for segregated accounts are not available to smaller pooled accounts in a consistent fund structure. It was apparent to us in the lead up to launching our own CCF in 2014 that most pooled funds are not tax-friendly in terms of withholding tax reclaims and that a 20-30 basis point ‘leakage’ per year can be the result. Some investment managers may offer a tax friendly CCF but others may not. This potentially limits the ability to replicate a segregated manager line up.
The cost and complexity of setting up a CCF is quite challenging for a manager and transferring to a CCF can be a headache for an investor in terms of paperwork. Even tax- exempt clients need to be set up in different ways. For example, a pension fund will be a different process from a charity and this can be limiting for some fund managers as it means setting up a number of sleeves in each currency.
With the launch on AMX we didn’t have to do any handholding – tax forms and other documentation were dealt with by the AMX team and the client is guided through the process. In short, the AMX fund allows Veritas the flexibility to offer a tax advantageous wrapper to pension funds of all sizes.
“What makes AMX different is the ability to leverage a tax advantageous wrapper and to do that in different jurisdictions with varying regulatory requirements, removing administrative tasks that are time-consuming and onerous for a manager.”
Another benefit is efficiency. We are a boutique firm and as assets have grown it is important to maintain the profile of performance our clients expect and continue to grow the business in a measured way. As well as considering factors like liquidity and valuation, it is important to control portfolio manager time on non-investment activity. With AMX, clients will have access to an investment specialist but not the PM directly. Clients still get the support they need, and management fees are reduced, so both sides benefit.
Consistency of reporting is a further benefit, and one that could be overlooked; one manager may provide data in a way that the client likes, but another manager may report differently, causing confusion. When both managers’ funds are on AMX, the client gets consistent reporting across the board, making analysis much easier. Looking ahead, uniform and transparent reporting (particularly on voting) will become increasingly critical as ESG considerations move to the front of the investment decision-making process.
2. What does AMX offer that is different?
AMX appeared to us to have advantages that no other platform offered. Naturally AMX handles anti-money laundering (AML) and know your customer (KYC) requirements, but other platforms may do that as well.
Having AMX handle the jurisdictional complexities, and ensure compliance with these jurisdictions, allows Veritas to offer a range of alternatives to investors and diversify geographically where locally domiciled fund structures are needed. The ability to do that is critical as investors, particularly DB pension schemes, continue de-risk and investment managers need to diversify their business.
AMX allows tax-efficient funds to be launched more quickly and new share classes within a fund to be created to meet the requirements of different investors. In short, if you have a product a client wishes to buy, you don`t want to be held back by operational activities such as setting up new share classes and receiving regulatory approvals.
3. How is AMX helping you deepen relationships with clients?
In the past, we had several calls a year from each client, whereas those have reduced to typically one for those now on the AMX platform. There has been no need to discuss operational issues in a meeting – you can be sure there must be some, so clients are clearly getting all the information they need from AMX.
Since our clients have day-to-day support on things like documentation, reporting and investment query management, we can focus on talking to them about performance, valuations, positioning of funds etc. The ‘mundane’ side of things, which can side-track meetings, is dealt with.
It’s a competitive market and clients are looking for a vehicle that fits their needs. We want them to have maximum choice and flexibility, and AMX helps us offer that route to tax-efficiency in a cost and time efficient way.
4. Were there any unexpected benefits from joining the platform?
The majority of our assets currently with AMX are from South African clients and we were pleasantly surprised by the speed of their migration onto the platform. Many have other managers on the AMX platform and the consistency and tax advantages it offers added value to these clients, who already liked the Veritas offering and investment approach. We could already offer a tax-friendly fund but their other managers could only do so via AMX and it streamlines things for clients to have everything in one place.
“Working with AMX has been so seamless that we don’t have to give day-to-day operations a lot of thought.”
In addition, the AMX fund offers jurisdictional flexibility and, since its inception in 2018, investors who use other managers on the AMX platform can see our CCF, giving us additional distribution opportunities to potential new clients.
I don’t need any other evidence that AMX has been a value-added option for us.
5. Can you sum up how AMX helps Veritas Asset Management?
AMX lets us offer clients greater choice of vehicle types, while helping us control our own business growth as the operational issues of setting these up are taken away.
Setting up on AMX was quick and the speed of transfer by clients has validated the decision we made to offer this alternative structure.
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