Tue, 14/06/2011 - 12:51
By Andrew Dollery (pictured) and Sophie Bentley – The proliferation of alternative Ucits funds has become a key feature of the fund industry landscape as investors demand more regulated, transparent and liquid products. Newedge has responded to this demand by taking an open architecture approach to servicing Ucits-compliant strategies.
Some funds have chosen to launch through integrated Ucits platforms that offer an established legal entity and operational infrastructure. However, for many the benefits of launching a Ucits fund independently, despite the cost and work involved, outweigh the advantages of a platform. From a branding, control and cost perspective, we believe this is often the most efficient long-term solution.
Newedge’s Ucits service offers a comprehensive solution to support managers looking to launch regulated products. An open-architecture approach to working with other service providers, in multiple domiciles and structures, gives clients the flexibility to create products that suit their own business model. This natural extension of Newedge’s non-conflicting, agency-based, brokerage model provides various clear benefits.
Branding. Continuity of branding represents a key element in any manager’s marketing strategy. Where managers set up their own fund, they maintain control of the branding associated with a new product. This may prove optimal in the long run compared with ‘leasing’ a sub-fund from a platform.
Flexibility. By launching their own fund managers can select their preferred service providers such as administrator, custodian and clearing/financing counterparties. This minimises disruption to middle and back office operations through the replication of existing relationships and set-ups.
Jurisdiction and structure. Clients can select their preferred domicile and legal structure, according to investor or manager preferences. Margin/collateral arrangements can be tailored to specific requirements.
Distribution. By creating their own structure, managers can tailor and control the distribution strategy. For example, Newedge works with Ucits clients through its Capital Introductions team to help source potential investors. This added-value service complements in-house sales teams and third-party distribution channels.
Total return swap. With a commanding position as prime broker to CTA and global macro strategies, it has been important for Newedge to expand its offering to include a Ucits-compliant solution for these managers, allowing them to gain commodities exposure equivalent to their futures trading programmes.
Since Ucits funds cannot hold commodity futures contracts directly, Newedge has developed a total return swap product, enabling funds to take synthetic exposure to a financial index whose underlying consists of a diversified range of liquid contracts, including commodities. Clients seek regulatory approval to create this Ucits-compliant index and, once authorised, the manager can systematically trade the index constituents via a Newedge account.
Dan McCausland, head of client services and marketing at Aspect Capital, says: “Launching a Ucits version of the Aspect Diversified Fund was a strategic priority. It was essential that we could rely on the counterparties we worked with to build the fund and that they could contribute to the construction process.
“We were well repaid by Newedge on both fronts. The fund depends on a swap provided by Newedge to access the returns of a Ucits-compliant index, which replicates Aspect’s managed futures programme. The daily three-way process with the calculation agent for the index works smoothly, and USD250m raised in the first four months testifies to investors’ approval of the product.”
Andrew Dollery and Sophie Bentley are responsible for origination and structuring at Newedge Group
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