There are many things to consider when looking to establish a ’40 Act registered fund, especially for hedge fund managers who have typically operated in a private fund environment. But as more investors seek out liquid alternatives in order to gain efficient access to strategies such as global macro, both alternative and traditional fund managers are becoming more active in the ’40 Act space.
Key to success in this area is partnering with an expert fund administrator with a track record of supporting a wide range of registered products. For over 30 years Gemini has been creating and servicing mutual funds and helping advisors successfully launch pooled investment solutions. With over USD62 billion in assets under administration (as of 7/31/18), Gemini services more than 480 pooled products across approximately 110 fund families.
“We are consistently adding liquid alternative fund structures with varying degrees of complexity to our fund administration,” observes Kevin Wolf, Gemini President of Solutions for Registered Funds. “The last 12 months have largely been consistent with the growth we’ve seen since 2007.”
“The 2008 recession and Madoff scandal resulted in a huge influx of hedge fund managers doing mutual fund conversions. We saw a large flight to regulation and a flight to liquidity at those times,” says Wolf. “That gave Gemini an opportunity to offer hedge fund managers our expertise on how to structure mutual fund conversions correctly, making sure there was a strategy fit and that the parameters made sense. Since that time, we’ve seen a steady stream of conversions. Additionally, many of the alternative mutual funds we’ve launched have been multi-manager funds with sub-advisors who traditionally operated in the hedge fund space.”
Gemini considers educating advisors to be a fundamental part of its role in supporting ’40 Act funds. Often, the US tax implications for complex derivatives can be debilitating and create inefficiencies. “The more you can educate clients up front on how to structure the product, the better,” explains James Ash (pictured), Gemini Senior Vice President, National Sales. “Clients need to understand a multitude of compliance issues, and we are well suited to handle and educate our clients on all the nuances.”
Aside from education, “you also need to have a good tax provisioning and oversight process to properly add value,” says Ash.
Wolf expounds upon that, saying “Gemini recently underwent an accounting conversion, which allowed us to build the data funnel differently than most of our competitors. We made sure we could pull data up into the system so that our data flow is as up-to-date and accurate as possible in relation to our clients’ holding positions, rather than scrubbing data after the fact.”
Another key role Gemini plays is helping clients get their product to market.
“We help advise them on how to best structure the fund within the ’40 Act space based on what we’ve seen before with other clients. However, you have to have the architecture in place out of the gate to avoid struggling with the administration tasks,” says Wolf. “Helping the client think of ways they might package their product in a compliant manner – that’s the really exciting part of the job. While many fund administrators are shrinking and consolidating, we continue to expand our operations and our expertise to handle the complexity of new ’40 Act funds coming to market.” n
