Derek Adler (pictured) ACSI is a director and founder member of International Financial Administration Group (‘Ifina’), which has now been around for 17 years providing fund administration services to small and emerging fund managers as well as large institutional clients. Over the last three years, Ifina has been successfully running a turnkey fund solution in Cayman for managers keen to avoid the cost and time to market to launch a standalone fund.
The umbrella fund structure, known as the Primary Development Fund, provides a segregated sub-fund arrangement and in Adler’s words, acts as a useful “stepping stone” for managers to build their track record and assets under management.
Last year, Ifina extended its platform capabilities by establishing the AIFMD-approved Primary European Fund SICAV in Malta to cater for managers wishing to target European investors from the get-go.
Ifina charges a set fee of EUR13,000 to establish a sub-fund on the platform and according to Adler “launching a standalone fund would cost double that. We’ll consider funds that are launching with as little as EUR1-2m.”
“We are trying to make life easier for emerging managers and start-ups regardless of where they are located,” says Adler. “The speed factor is particularly beneficial. Because our Cayman umbrella structure is already CIMA-approved, a manager can get a sub-fund, subject to due diligence, approved within three to four weeks. That’s pretty rapid for getting a fully licensed fund up and running. The normal timeline for a standalone fund is typically six to eight weeks.
“This is a real advantage to new managers if they have potential investors in the pipeline. They may be a small team and will want to start trading as fast as possible to secure those potential assets.”
Another clear benefit is the avoidance of having to go through the hassle of opening brokerage accounts, corporate bank accounts and such like. Adler notes that recently, the whole compliance process of opening a corporate bank account to handle investor subscriptions, redemptions etc., “can take anywhere between four to eight weeks”. As many of the executing brokers and banks already interact with the Primary Development Fund, it’s simply a case of opening up an additional sub-account, thereby fast tracking the process.
This ability to leverage off the umbrella fund (and in turn its aggregate assets) is particularly advantageous to start-ups who are finding it increasingly more difficult to establish prime brokerage relationships with established names as banks begin to feel the pressure of Basel 3 regulation.
“Absolutely. And with all the new rules and regulations concerning FATCA, AIFMD, it has become a nightmare for smaller managers. It’s okay for the bigger established managers, they have the depth of capital to handle these issues, but for new managers that are looking for a leg up to get started there are very few choices available to them.
“A lot of administrators, not just prime brokers, will not look at managers beneath a certain level of AuM. Our structure is ideally suited to take on managers running less than USD10m. We will take them on, on the proviso that they need to have USD3-4m over a reasonable period of time to make it viable with all the various charges, directors’ fees and so on. As long as they are prepared to do that, we will happily support them. We don’t mind if the manager is USD1m or USD10m, we get the same minimum fee. What matters is that the proposition is fair to the investor,” explains Adler. Indeed, if there are no plans to grow the AuM then a fund structure is not the way to go.
In its 17-year history, Ifina has always geared itself to support the smaller fund and often takes clients from the larger, bulge bracket administrators. Adler says that Ifina’s philosophy is that they’d rather have 10 funds with USD10m than one fund with USD100m.
“That philosophy has paid off for us. We’re providing a service that very few people are able, or indeed willing, to offer,” adds Adler.
The structure
The Primary Development Fund is basically a holding company composed of multiple sub-companies. Each sub-fund that sits beneath the umbrella structure is a separate legal entity. If there were 10 funds on the structure and one imploded, it would not impact the other nine funds at all.
Although the holding fund is called the Primary Development Fund it does not preclude each sub-fund from adopting its own name; in fact, this is actively encouraged.
The opportunity exists for the manager to spin off at any stage. If they start off with USD5m and reach USD20m faster than expected, the manager is free to establish a standalone fund with the full track record preserved.
“The costs of joining our platform are 40 per cent lower than they would normally be. Therefore, when a manager decides to spin out and set up a standalone fund they reimburse us the difference; we’re basically providing the bridging finance to get them up and running at a very low cost.
“We’ve had a few new sub-funds join the platform this year and we have a few in the pipeline heading into 2015. We have around a dozen sub-funds at the moment,” confirms Adler.
Ifina does not operate a revolving door policy. The due diligence performed on each prospective manager is tougher than most regulators according to Adler, thus ensuring that when each client file is submitted to CIMA they know that every T has been crossed and every I has been dotted. This helps to further speed up the approval process.
Many start-ups believe it’s a straightforward process to set up a fund. They don’t necessarily appreciate the difficulties involved; dealing with lawyers, appointing service providers, getting service level agreements in place and so on.
“The beauty of using a firm like Ifina is that we project manage the whole process. The costs are low because we know the format. We know what CIMA want. We deal with 20 to 25 different executing banks/brokers. We review all the legal documents. All said and told, it saves a lot of time.
“Everything is therefore taken care of under one roof,” says Adler.
Daily Indicative NAV
One final benefit to using the Primary Development Fund is that each sub-fund receives a daily indicative NAV; something that one would ordinarily associate with running a standalone fund.
There are two points that are important to an emerging manager when setting up a fund. Firstly, how do they raise assets when investors might be nervous about allocating to the fund? If they can provide a daily indicative NAV, a prospective investor can get an idea of how good, or how volatile, that manager is.
“Secondly, once the investor is in and maybe they are still nervous and want transparency, they can get a daily indicative NAV from the manager. In the US the preference still seems to be for account managers, which are very inexpensive, but they don’t provide the same level of service as a turnkey solution such as ours.
“We’re pleased with the way our umbrella structures have been evolving. We know our clients are happy with the service and the platform, for the price they’ve paid. The more we discuss the merits of using umbrella structures, the more we hope to attract even more start-ups,” concludes Adler.
