Capitalising on convergence between 40 Act and onshore funds
In August, the Financial Times reported that more than half of US hedge fund groups had launched, or were in the process of launching, traditional mutual funds, otherwise known as 40 Act funds. The objective is simple: to widen out a manager’s overall investor base. But it’s not just hedge fund managers launching long-only funds. Increasingly, in the US, traditional managers are looking to launch onshore hedge funds to also widen their investor base.
“Not all of their clientele have the appetite for an alternative product but for the ones that do, traditional managers want to consolidate and have a product that appeals and reaches to that audience. We are seeing a convergence in the US onshore fund market between managers of 40 Act funds and hedge funds,” observes Ted Jasinski (pictured), General Manager of Richmond, Virginia-based Admiral Administration, the alternative fund administration arm of Maitland.
The firm’s strength is rooted in mutual fund administration in South Africa, where the firm was founded. Last year, to build out its expertise in alternative fund administration it acquired Admiral Administration, which has solid experience in the North American market. With over 750 employees, a global footprint with 13 offices across 12 countries and approximately USD170billion in AuA, the firm now sits at the top table and is competing with well-established bulge bracket firms.
The growth of the onshore US fund market is understandably a great opportunity for the firm.
“With Maitland’s technology capabilities we are able to offer a full front- to back-end solution for 40 Act funds, as well as onshore hedge funds. We can support any type of asset class and because we now have a global presence, if a US client decides they want to launch a Luxembourg-domiciled UCITS fund, for example, we have a full solution for that,” comments Jasinski.
One of the main drivers behind the growth of the US onshore hedge fund market has been the increased difficulty in capital raising. Most new managers are taking a longer-term pragmatic approach and launching a Delaware LP structure with their own money, and that of friends and family. Only once they’ve built a decent track record do they consider Caribbean master/feeder funds and raising external foreign capital.
What’s also changing is the attitude towards fund administrators. Five years ago, there was a flight to large tier one administrators among managers, but as Jasinski explains:“We have a high-touch global relationship-driven model and that’s helped us because some of the tier one shops are not as flexible with customisation and still do not really bend on their pricing.”
In terms of growth opportunities, Jasinski observes that more hybrid-type private equity funds have come to the onshore market this year. “These hybrid funds are leasing patents and copyrights, for example, so it’s more of a cash flow-type instrument but in a private equity structure. That’s been a steady area of business for us this year,” says Jasinski, who sums up the importance of having a strong US presence by concluding:
“We did a recent trip to New York with the CEO of Maitland (Steve Georgala) where he was able to see first hand the clear potential of the US market. We believe ourselves to be well positioned by having superior products at a competitive price.”
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