For UK fund managers, distribution in a post-Brexit environment is very topical. It is one of the single biggest challenges that UK managers are grappling with, as well as managers based around the world who wish to do business in Europe.
ML Capital, an independent European regulated fund structurer that is best known for its MontLake UCITS and MontLake QIAIF platforms, is cognisant of this and is focusing its efforts on delivering the right level of support to managers who use its platform and management company services.
“We provide platform hosting plus distribution services,” says Richard Day, COO at ML Capital. “We also operate a number of regulated entities. We have a Super ManCo license for UCITS funds and AIFs in Ireland, which is passported across Europe to Luxembourg, France and Malta. In addition, we maintain MiFID licensed firms in Ireland and the UK.”
Historically, fund distribution in the UCITS space has been done by investment managers using MiFID entities. By having dual MiFID licenses for Ireland, an EU Member State, and the UK, ML Capital is nicely positioned to help its clients overcome the distribution challenges as a result of Brexit.
ML Capital has a two-fold approach to distribution, namely Passive and Active, which focuses on the manager and the investor respectively. ML Capital ensures the highest possible service quality for all fund structures on its MontLake UCITS platform so that the investor has the best possible investment experience.
Passive distribution is offered to all fund managers and focuses on market accessibility and visibility, ranging from the regulatory requirements of passporting to specific investor needs, such as tax reporting, platform accessibility and much more.
Active distribution, on the other hand, is only offered to a small handful of fund managers on MontLake UCITS. ML Capital has seven active sales people dedicated to selling funds on the platform who come from a range of cultural backgrounds across Europe. Core sales regions include the UK, Ireland, French-speaking parts of Europe (Geneva, Paris, Benelux), German-speaking parts of Europe (Zurich, Austria and Germany) and Italy.
“For managers who are looking for a pan-European – including the UK – distribution partner, we have all the licenses in place to support them,” says Day.
“We are one of the only players in this space to have a proven active distribution business. As people grapple with the issues around Brexit, they are looking for partners that not only have the regulatory approval but also understand the complexities of what it takes to do distribution across Europe.
“Over the last nine years, we have firmly supported managers to help them navigate a complex distribution landscape in Europe. We’ve done this by being a distribution-led firm that understands what it takes to raise capital, not only for the funds we are out raising capital for, but also supporting third party distribution partner to funds on our platform.”
ML Capital is, in some ways, benefiting from an increasingly complex regulatory environment. Aside from Brexit, new regulatory developments in Europe such as MiFID II are making it harder for UCITS platforms to operate and offer effective distribution solutions.
“Some of our competitors who have traditionally operated as UCITS management companies are coming up with and selling distribution solutions to support managers in the looming post-Brexit environment. But their backgrounds and businesses would typically not have been built on the fundamentals of active distribution.
“In effect, they are getting MiFID licenses and asking managers to come and sit under their regulatory umbrella, but in our view we do not think the regulators are going to be overly happy with this. The concept in the UK of Dedicated Persons operating under someone else’s FCA license does not exist anywhere else in Europe. There is not a UK equivalent model in Europe.
“The fact that we’ve had our regulatory licenses for many years and we’ve had an active distribution model in place since the beginning is a clear advantage,” comments Day.
He points out that the regulatory environment is helping ML Capital to attract an even higher calibre of fund manager, thanks in part to bank-owned UCITS platforms beating a retreat.
Currently, ML Capital is in the process of building an ICAV structure in partnership with Longchamps Asset Management which was previously actively distributing funds on Morgan Stanley’s FundLogic Alternatives platform. Two of these funds were managed by Ascend Capital LLC and Dalton Investment. Both managers are joining forces with Longchamps to establish the Lafayette UCITS ICAV.
ML Capital will serve as both the platform operator and the UCITS management company.
“The reality of running a UCITS platform business is that it is highly resource intensive. If you want to operate a platform and be a solution provider to third party managers who wish to run UCITS funds, it comes with a reasonably high labour cost and you need a strong team in place.
“At ML Capital, we have implemented a very robust and scalable operating model so we can make it work, we are also independently owned hence we are non-conflicted. We’ve seen managers who might previously have gravitated towards bank-owned platforms coming to us and we are currently working on a few new launches that previously we might not have had the opportunity to work on.
“It is enabling us to attract a better calibre of manager which is more interesting from a distribution standpoint,” suggests Day.
He says that extending distribution services to a broader range of clients on the platform is a proposition ML Capital is quite comfortable with.
“For third party managers who are using us as a third party management company or who have sub-funds on the MontLake UCITS platform, it isn’t too much of a leap of faith for us to step in and support them in their fund distribution activities, regardless of what the Brexit deal ends up being.
“We can provide business certainty to fund managers and I think that is being well received.”
ML Capital’s sales team has an ongoing dialogue with investors across Europe to determine the issues they face today, from a UCITS investment perspective. Where do they feel there is a lack of manager supply? What are the issues they are facing in their investment portfolios? With correlations rising in the market, which managers and strategies can help diversify some of the risks away in an investor’s portfolio?
Day is keen to stress, however, that such active distribution support is not offered on a standalone basis.
“We are only willing to offer distribution support to clients to whom we have a fiduciary role. We have our reputation to think about.
“In terms of our existing client base, a number of them have come to us asking for help it’s not too much of an extension of our fiduciary role to support them in a post-Brexit distribution environment. We are open to that. The UK will, in all likelihood, lose its right to distribute funds into Europe. Whatever the final Brexit deal looks like, we have the distribution model in place to help our clients.”