One of the primary reasons for investment managers choosing to use regulatory hosted services such as those provided by Mirabella, part of the Cordium group, is because of the time it takes regulators to approve manager applications; sometimes up to nine months in the UK.
For start-up managers entering the market for the first time, or existing managers outside of Europe who are looking for an AIFMD solution, the Mirabella platform, either alone or in tandem with the Cordium Total AIFM Solution (CTAS) provides a clear, cost-effective pathway.
Where CTAS differs from the usual outsourced AIFM solution is that the manager retains full ownership of the AIFM; in Malta. Cordium, meanwhile, takes care of all the operational headaches to set it up and ongoing compliance demands. This allows firms to save considerable time, effort and cost involved in manually setting up a firm in Malta and applying to the MFSA for AIFM status and ongoing aspects of managing various service providers.
"People like the benefits of a hosted platform when compared to direct authorisation. In the UCITS world having the name of the outsourced ManCo in your offering documentation is familiar to managers, but in the AIFM world we noticed that there was a feeling that managers wanted branding consistency throughout their product. CTAS offers the best of both worlds. Managers retain full ownership and branding of the AIFM, whilst at the same time benefiting from the reduced workload associated with the outsourced solution of a hosted AIFM," explains Joe Vittoria (pictured), Chief Executive Officer, Mirabella.
Adam de Domenico, Chief Executive Officer, Cordium (Malta), further explains the concept by adding: "Malta has a friendly regulatory environment. While they are waiting, the manager can use a plug and play option by joining the standard Mirabella platform, until their own AIFM license is approved by the MFSA; at which point they can then seamlessly move from Mirabella to their own AIFM. It is a seamless approach. CTAS delegates the portfolio management back to the fund manager, wherever they are based; London, New York, Hong Kong. That said, we have also seen an increase in fund managers moving to Malta for more frequent trading strategies and a significant increase in less traded strategies like PE and Real Estate."
For US managers, the Mirabella/CTAS axis is an attractive proposition as they contemplate bringing AIFMD-compliant funds to market. Many, for the time being, are happy to utilise national private placement regimes to market their offshore funds to European investors, but as those rules eventually get phased out, they may have no choice but to establish an AIFM in Europe.
As such, managers can use Mirabella as a stopgap whilst the Cordium team in Malta set up the AIFM and take care of the regulatory process with the MFSA, or, if preferred, managers can remain on the Mirabella platform indefinitely and avail of its AIFM license and expertise.
Since 2001, Mirabella has hosted over 100 clients. It currently has 50 clients on the platform using its FCA & MFSA licenses, and the managers on the platforms have in excess of USD4bn in AuM.
"In the last couple of years, where Mirabella has benefited (in addition to speed to market) has been institutional investors being attracted by the services we provide, such that we are now starting to see investors send us managers," says Vittoria. Investors that are being approached by managers are insisting that they join regulatory hosting platforms such as Mirabella before they allocate any capital.
That in itself represents a clear shift in mindset among investors. As Vittoria recalls, 10 years ago institutional investors tended to look down on managers who sat on hosting platforms. Now, those same investors are stipulating it.
Oftentimes, people want to get their fund to market as quickly as possible because investors have come to them with capital ready to commit. If the manager then spends months getting the fund management entity licensed, the risk is that those investors will go elsewhere.
"Therefore, at Mirabella we take on the manager so that they can get to market with their fund, and then hand the manager over to the manager's own manager entity (which includes the ones in the CTAS program) once they have been approved by the regulator. Some people choose to stay with Mirabella for longer if they feel they are not ready to spend the resources or time running their own business because they want to focus on building the track record; and doing anything else at that stage can be distracting to some," explains Vittoria.
"It is a bit like having an indefinite call option. As soon as the time is right, they leave and become their own fund management entity but it is entirely up to them as to when to do that. In some cases a seeded manager will decide to start with us and only go down the registered AIFM route once they've got a certain number of investors in the fund."
In Malta, de Domenico says that now Cordium has through its first cycle of onboarding CTAS clients, one of the key features of its success, to date, has been the fact that clients have an accurate handling of their costs. This is an important point because non-EU managers who might feel overawed by the cost implications of setting up their own AIFM – offices, staff, regulatory fees and so on – have a viable alternative to consider. Moreover, this is important for European investors who seek access to high quality talent; the last thing they want is for non-EU managers to turn their backs on Europe.
"When it comes to fee structures what we offer is very similar to Mirabella – a one-line fee that captures everything," explains de Domenico. "It is imperative for managers to manage the initial period of costs when becoming an AIFM. The single constant monthly CTAS fee includes external service providers, like auditors, regulators, and lawyers. Hence, knowing exactly what the costs will be to setting up the AIFM and running it is very important. Managers tend to forget the hassle involved with operating a ManCo once they have received a license. We remove that hassle. They can focus purely on managing the portfolio.
"Larger managers who are looking for a solution under AIFMD are attracted by the reputational name of Cordium. It helps to reassure their investors."
For managers evaluating the easiest route into Europe, the Mirabella/CTAS offering eliminates the fear of the unknown. And that alone is priceless.
