The ‘plug and play’ fund solution
Typically there are three options for managing external money: using managed accounts, setting up a dedicated fund structure or launching a fund on a regulated fund platform.
The latter is best thought of as a halfway house option and is particularly suitable to those launching with EUR10 to EUR30 million in AUM, or even less. The beauty of the fund platform is not only does it provide efficient speed to market, it allows fund managers to concentrate on what they are good at, operating with a lean team that helps to keep management company costs to a minimum.
The Lawson Conner Group runs the Discovery Investment Manager Platform. By leveraging its FCA license, managers can act as Appointed Representatives and take succour knowing that all the operational, regulatory and compliance infrastructure is in place to support the fund and their investors.
"Lawson Conner also acts as the AIFM to the Discovery Platform. This is a full scope AIFM called G10 Capital," explains Andrew Frost (pictured), Director, Investment Management Solutions. "This means anyone launching a fund can avoid going through the process of selecting an AIFM as there is an award winning one already in place. G10 Capital also acts as the principal firm to the Appointed Representative. It is an all-encompassing solution."
The sub-fund that one runs on Discovery is structured as a Cayman Islands Segregated Portfolio Company (SPC), with Frost confirming that later this year Lawson Conner will have an Irish ICAV in place, for those preferring onshore fund structures.
These fund platforms are best thought of as pre-structured `plug and play' fund solutions. A lot goes into launching a fund: appointing independent directors, selecting the main service providers (auditor, fund administrator), paying for legal counsel representation.
"These are all costs related to the fund and it requires a lot of work. In most cases, start-up managers won't have a COO to handle this. In the pure start-up space, therefore, establishing a standalone commingled fund is not always necessarily the most cost efficient option.
"The only consideration for the manager is to choose their preferred prime broker as this is not part of the pre-structured solution. G10 Capital, as the authorised AIFM, has agreements in place with most of the top tier prime brokers on the street.
PwC, Apex Fund Services and Harneys are the main service providers that work with Discovery. Discovery already has a private placement memorandum that has been signed off by offshore counsel. All the manager needs to do is write a supplement to the prospectus. This, says Frost, will include details on the manager's investment strategy, the types of instruments it will be trading, performance fees and the backgrounds of the portfolio managers.
"When they do a European roadshow it means they've already got a PPM that they can put in front of a prospect. This demonstrates that the fund is up and running, bank accounts are open and a subscription document is ready for investment," states Frost.
Crucially, the investment manager has their name on the fund, it is their branding and marketing strategy with the Discovery providing the regulatory and compliance infrastructure to allow this.
Frost confirms that as well as hedge fund structures, a number of private equity clients are using the Discovery platform for co-investment opportunities.
"They can get the sub-fund set up within a matter of days and close on deals much quicker. We think it is a trend that will continue," concludes Frost.