Thu, 31/12/2009 - 09:02
Innocap may not have the high profile of some players in the hedge fund managed accounts sector, but it has the longest experience of any of them. The platform was launched in July 1996 when National Bank of Canada made a USD28m investment in hedge funds from its proprietary capital and decided to do it through a managed accounts programme in order to retain control over the assets.
Following a period as an in-house programme, the platform started accepting third-party money in 2000, and three years later National Bank of Canada created Innocap by spinning the platform out of its treasury into a separate asset management firm. In 2005 the firm began to create its own legal vehicles and established an infrastructure that remains the only managed account platform where the assets are located onshore, in Malta.
Two years ago BNP Paribas took a 25 per cent stake in Innocap and adopted its present structure, with the ‘manufacturing’ and risk management activities carried out in Montreal and global marketing undertaken by representatives employed by BNP Paribas. This leaves Innocap with the backing of two substantial institutions with deep pockets yet independent of them both, and with diversified ownership that reduces any risk related to the fortunes of its parents.
Today Innocap has some 50 managers on the platform and nearly USD2bn in assets following the turbulence of the past two years, with more than 90 per cent of assets coming from institutions, including notably Caisse de Dépôts et Placement du Quebec, Canada’s largest pension fund. One of the factors that reassures institutional clients is that the firm has achieved Type II SAS 70 certification for the past three years.
The fact that Innocap was built for and by an institution makes it different from other platforms in many ways. For example, because it does not need to structure products on managed accounts, it can be flexible and adapt to clients’ individual requirements, for example providing daily liquidity for CTAs at the same time as handling more illiquid products with monthly or even quarterly liquidity.
In addition, Innocap ensures that no conflicts of interest arise with its parents. The firm uses more than a dozen prime brokers, and BNP Paribas is currently not one of them, while JP Morgan acts as banker to the structure. Whereas other providers seek to earn revenues from services to their managed account platform, in areas such as custody or prime brokerage, Innocap stipulates that it receives no other revenues than those disclosed to investors: no retrocessions, no rebates, no deals with distributors. It does not try to hide fees in high-margin structured products.
The firm runs an open architecture, so there are no share classes, and is totally transparent on fees. In addition, Innocap offers official daily net asset values for managers that use liquid enough instruments such as futures in order to provide daily liquidity. It’s almost unique in the market to be able to buy or sell strategies from high-profile CTA managers on a daily basis with three days’ notice.
All these distinguishing factors – having the longest running platform, offering daily NAVs, being built by and for institutional investors, having SAS 70 certification, and keeping assets onshore – coupled with the firm’s three values of open architecture, transparency on fees and no conflicts of interest, have made Innocap a solid choice for institutional investors and their consultants.
Martin Gagnon is co-chief executive of Innocap Investment Management
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