As managers look to grow or launch funds quickly in response to investor interest, three paths forward offer different benefits and challenges.
1. Do it yourself. Set up your own management company in an EU member state. When employing this approach, your firm creates all the infrastructure needed to own and fully operate funds outside the U.S.
Pros: This sets you up for ultimate flexibility in the future as you continue to launch funds and deepen market penetration. You own and manage the entire end-to-end process and can adjust as your needs change.
Cons: That flexibility takes time and brings associated costs, risks and administrative burdens. You’ll need to staff up or relocate resources to operate the management company (ManCo) and will be fully responsible for regulatory compliance and all the operational aspects of managing and distributing the funds. This is a long-term project and, as such, is not well suited to rapidly accelerating growth or quickly launching a new fund.
As domiciles such as Ireland call for more ‘substance’, the hurdles of time, resourcing and oversight required to set up your own ManCo are only increasing. Gone are the days when a P.O. box and a few business trips might suffice; now you need to have a significant, sustained local presence. The up-front investment and maintenance costs are substantial and include licensing fees, local office space and competing for talent to handle all the legal, regulatory and operational complexities.
2. Retain fund ownership but outsource ManCo operations. This middle ground lets you hand off some responsibilities to a third-party management company, mitigating some – but not all – of the burden.
Pros: Using a ManCo simplifies your access to the market and lets you leverage existing infrastructure and substance. Some components – such as fund administration oversight or regulatory reporting – are taken off your hands.
Cons: You’ve handed the governance and oversight of your fund over to a third party, which gives you less control over both. You still carry significant administrative responsibilities, plus the challenge of distribution, while also carrying the associated costs of operating the fund(s).
Outsourcing to a local ManCo solves some challenges but leaves your staff still managing a number of day-to-day activities that take their focus away from core activities. You will still be on your own with respect to distribution support, unless you hire a separate third-party marketing service to help. When seeking a ManCo to partner with, ideally, you’d want to work with one with significant substance and experience, as well being capable of adeptly handling future requirements coming from regulators.
3. Choose a distribution partner to fully manage and administer the funds and help with distribution. Someone else bears the infrastructure costs, while efficiencies and commercial arrangements minimize the drag on fund performance.
Pros: You can set your fund up through experts who can manage all aspects of management, administration and distribution. And, once your first fund is established, the next funds are faster and easier to launch. Client onboarding is also outsourced, freeing up bandwidth for internal client facing teams. Distribution also gets a boost with marketing to an existing network of investors and prospective platform users. This approach also lets a manager focus all efforts on making an individual strategy succeed quickly in the market. Further, if a fund on a platform fails to garner assets as expected, the sunk cost for the manager is significantly less by comparison.
Cons: Not all platforms cover all markets. If you want to extend your funds to other markets, you may have to replicate them if your distribution partner doesn’t operate in that jurisdiction or market segment (hence the importance of selecting a partner who matches your distribution aspirations).
Choosing a fund infrastructure and platform partner will give you an efficient entree to new markets. You’ll be leveraging an established channel geared towards managing the entirety of the process: fund management, distribution, and most administrative burdens including AML/KYC, regulatory and compliance reporting, and legal negotiations. Templated documentation and expert onboarding should make it easier to onboard your first fund and – once that’s established – every new fund follows the same path. This compresses the time from strategy to implementation to distribution, making it more likely that your strategy gets to market quickly while relevant to investors. At the same time, benefits of scale help to minimize fund costs and reduce drag.
AMX: Removing the hurdles to global distribution
AMX’s Irish-based Super ManCo offers governance and oversight assistance for those who would like to launch their own proprietary structures, while at the same time avoid deploying the resources and capital that would otherwise be required to set up one’s own ManCo
For managers who want to offload more administrative duties and have institutional distribution assistance, the full AMX solution delivers a comprehensive suite of services that cover operational, regulatory and governance activities. Funds are managed and fully governed by AMX on a multi-asset institutional platform. The manager runs the portfolio, works with their clients and retains critical decision-making and middle office functions. With an efficient infrastructure provided by an experienced partner, managers can focus on managing existing funds and quickly launching new strategies, and with the potential of gaining fresh investors in new markets at minimal incremental cost.
Photo credit: Paul Sheehan