Start-ups should aim for a minimum AUM
Interview with Linda Clegg - Investors will always assess potential returns and the quality of investment strategy but in the opinion of Linda Clegg, Manager Business Development & Fund Formation, Custom House Fund Services, today they’re looking a lot more at the associated risks before allocating to new funds.
“Many are considering going for what they perceive to be safer jurisdictions,” says Clegg (pictured), which raises the whole issue of whether to structure a fund offshore or onshore in more regulated jurisdictions. David Barry, Head of Sales & Marketing, Europe and Middle East at Custom House Group, adds: “In general, investors are looking more at regulated products in these established jurisdictions, such as UCITS or ‘Newcits’.”
Approximately 80 per cent of new assets in 2010 went to the top ten hedge funds, meaning start-ups face a tougher time raising capital. This, says Barry, is due to low investor confidence at present, and as a result of the liquidity mismatch, they are more concerned about exposure levels. As a consequence, institutional investors are less likely to be the main seed investor to start-up managers.
“The choice of jurisdiction is key,” explains Clegg. A manager should factor in where their target investors are based and also whether restrictions set in certain jurisdictions will limit their investment strategy, before making a final decision.
If cost and speed are important, they should look at more offshore jurisdictions. A typical Caymans offshore structure would take approximately four to six weeks to set up. Malta, says Clegg, takes approximately eight to ten weeks because “the MFSA carry out a more comprehensive due diligence process on each of the individuals behind both the fund and management company”.
Infrastructure is another key consideration given that post-Madoff investors are performing far greater due diligence. As Barry asserts: “Track record and performance are always important as that’s what attracts investors in the first place but start-ups also need to have a tight operational infrastructure.”
Whilst some start-up managers consider domiciling the fund onshore to attract certain investors, the costs and timing involved in doing so are sometimes prohibitive to their plans. In this situation, Custom House would suggest a client set-up the fund offshore and look at redomiciling, if necessary, further down the line.
Custom House offers a set-up service, where a law firm has not already been engaged, which is designed to achieve the following:
- To help establish a fund that meets the client’s objectives;
- To eliminate the problems that clients may have when trying to establish their own specialist fund;
- To ensure that the fund is set up at an acceptable cost; and
- To do this as quickly and efficiently as possible.
Custom House also offers The Nascent Fund SICAV PLC: a Maltese open-end umbrella fund platform, specifically designed to provide an efficient and cost-effective solution for new managers wishing to start up their own open end hedge fund.
This enables managers entering the market to establish and control their own segregated sub-fund, with a relatively small amount of initial capital.
“We distinguish ourselves through our client service and personal service offering,” concludes Barry. “We recently launched an online dealing platform, which makes life easier for investors. As experience has taught us, if investors are happy, managers are happy.”
Linda Clegg is Manager, Business Development & Fund Formation, at Custom House Fund Services
Please click here to download a copy of the Hedgeweek Special Report: Setting Up Alternative Investment Funds 2011
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