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Updated: 8 weeks 4 hours ago

Eze Software launches 1/30 hedge fund fee handler

Wed, 10/04/2017 - 09:48

Eze Software has launched functionality to help hedge funds calculate and collect incentive fees within an increasingly popular ‘1 or 30’ structure. Eze Investor Accounting is the first solution in the market to address the handling of these fees.

In recent years, investors have been looking for alternatives to the 2 and 20 fee structure that are better aligned with the need for consistent investment performance. The so-called 1/30 structure uses the Total Fee Limit Method to ensure that the investor retains 70 per cent of the profit generated for their investment in a hedge fund, capping the total fees to the manager at no more than 30 per cent of gross profits over a period of time. The model analyses the management and performance fees for a time period versus a portfolio’s performance and limits the negative impact from fees on an investor’s alpha in underperforming years.
 
Eze Investor Accounting has automated this calculation and analysis, ensuring that managers can efficiently review the total fee inputs and results, and report consistent and accurate fees to their allocator clients. Using Eze Investor Accounting allows the manager’s back office to avoid manually calculating and tracking the 1/30 model, and rapidly respond to any investor queries regarding the fees.
 
“This is a very difficult calculation to be able to track manually through Excel,” says Bill Neuman (pictured), Managing Director, Product Management & Development. “Because the fee structure requires tracking cumulative performance against benchmark over time, the market needs technology to manage continuous rebalancing. With this tool, we are responding to demand for the delivery of a clean capital balance with minimal processing.”
 
The incentive fee structure, popularised by the Teacher Retirement System of Texas and its consultant Albourne, has been generating interest among allocators. In addition to calculating the fee split between the investor and managers, Eze Investor Accounting gives users the ability to adjust the time period over which the fee analysis occurs and changes are calculated, include the calculations on capital reports, the ability to use estimates and close periods, and recall data on custom capital reports as needed. 

offTechnology and software solutions

Is this the time to consider reinsurance for a diversified hedge fund portfolio?

Wed, 10/04/2017 - 08:00

By Don A Steinbrugge, Agecroft Partners – Most institutional investors understand the uncorrelated, diversification benefits of property catastrophe reinsurance. Many have been waiting on the sidelines for a large event to happen that would drive up pricing before allocating to the strategy.  The two big questions these investors ask are, “Is pricing going up?” and “Has the probability of hurricanes increased?”

 Will pricing on property catastrophe reinsurance increase?
 
2017 has the potential to be the costliest year for the reinsurance industry on record, even worse than 2005 when the reinsurance industry was impacted by hurricane Katrina, Rita and Wilma.  Applied Insurance Research (AIR) Worldwide estimates that losses from Hurricane Maria could add between USD40 billion and USD85 billion to the insurance industry losses from recent catastrophes. When added to the devastation of Hurricane Harvey and Irma along with recent earthquakes in Mexico, losses could be as high as USD165 billion based on AIR estimates of all events.
 
Insurance companies typically assume the initial losses from major events and purchase reinsurance to cover losses above a threshold. The most recent events will likely have a disproportionately large impact on reinsurance, compared to others in the insurance industry, as they trigger aggregate losses which exceed those thresholds
 
Prices for reinsurance are impacted by supply and demand. The potential USD165 billion of lost capital will need to be replaced and will subsequently put upward pressure on pricing. In addition to the immediate material loss, a significant amount of capital will be locked up for accruals of potential claims at the end of 2017. This capital will be unavailable during the forthcoming January reinsurance renewal season. 
 
Fitch Ratings noted “Given the magnitude of the Maria-estimated losses, we now believe that 2017 catastrophe losses will constitute a capital event for a number of (re)insurance companies as opposed to just an earnings event.”  Companies faced with a potential downgrade will either have to raise capital or reduce their balance sheets, thereby putting further pressure on pricing. Price increases will be moderated by new capital coming into the industry but also enhanced by investors withdrawing capital from underperforming funds.
 
As a result property catastrophe reinsurance rates may increase to the highest level seen in years, especially in regions affected by the 2017 hurricanes and in the Retro (reinsurance of reinsurance companies) market. For example, before the most recent events, but after Hurricane Harvey and Irma, some reinsurance deals were completed with premiums 25% to 50% higher than deals earlier in the year.
 
Has the probability of future hurricanes increased?
 
There has been a lot of debate on the impact of global warming on weather patterns. However, there is no clear evidence supporting the theory that global warming is impacting property damage from hurricanes over the short term. The short term (one year or less) maturities of most reinsurance deals allow models to remain accurately applied in the face of gradually shifting weather patterns. As a matter of fact, over the previous decade and before the third quarter of 2017, the industry experienced below-average losses from hurricane-related catastrophes.
  
What is reinsurance?
 
Reinsurance is one of the few hedge fund strategies that has almost no correlation to the stock or bond markets. The strategy has the potential to generate high single-digit to low double-digit returns on average over the next five to ten years, regardless of the direction of the capital markets. One way to understand the asset class of reinsurance is to compare it to structured credit. Lending institutions can either hold various loans they have made on their books, or they can sell the loans to other institutions and keep a small transaction fee. Insurance companies can do the same thing with property insurance policies they underwrite. 
 
When a bank sells their loans to a third party, often the interest and principal payments are broken out into various structured credit tranches offering different expected risk-versus-reward levels.  This concept of slicing up risk is similar to how insurance companies carve up a basket of insurance policies. Typically the insurance company assumes most of the initial risk and then sells off tranches of risk to reinsurance providers. The most conservative way to participate in the reinsurance market is through catastrophe bonds (CAT bonds). These securities trade on exchanges and can easily be purchased by institutions. They generally cover the highest tranches of risk and tend to have the lowest probability of loss. They also offer the lowest yields and expected returns. Most of these securities are only yielding approximately 5% before loss and gross of fees and expenses. Traditional reinsurance tends to focus on the middle layers of risk offering yields significantly higher than CAT bonds and is the area that most institutional investors are focused.
 
What are some of the things to consider before investing in a property catastrophe reinsurance fund?
 
It’s not easy to differentiate between reinsurance funds during long periods without a major event. The third quarter of 2017 will cause the relative performance between funds to widen out dramatically and provide a good stress test to determine which reinsurance funds actually have good risk controls. How funds performed during this period relative to expectations will be important to consider when determining the potential funds to which one should allocate. We expect to see some firms with single digit losses while others may be down over 50%.  Firms with draw-downs of this magnitude will either go out of business or require many years to move back to their high-water mark. 
 
Other evaluation factors on which to focus were included in the previous paper we wrote on the industry titled, “Reinsurance: the Perfect Hedge Fund Strategy to Enhance a Portfolio’s Sharpe Ratio?” In addition to those, we believe the best way to maximise future returns is by focusing on mid-sized reinsurance organisations with between USD500 million and USD2 billion in assets. As a firm’s assets grow above USD2 billion, their ability to generate alpha through deal selection is slowly reduced as alpha is diluted across a larger asset base.
 
Other ways of differentiating reinsurance funds are:
 
1 Volume of deal flow: It is very difficult to generate a large amount of deal flow in the reinsurance space.  To access the deal flow, firms must have relationships with regional insurance brokerage offices. Developing relationships across the extensive geographical landscape of the reinsurance industry takes an enormous amount of time and effort. However, the more regional relationships a firm is able to develop and, subsequently, the more deals they are able to see, the more inefficiencies in the market they can potentially identify.  
 
2 Focus on small, regional companies: By focusing on smaller insurance companies that typically primarily focus on single-family residences within a single state, reinsurers face less competition and can receive more accurate information to precisely identify and price risk. This information advantage allows reinsurers to diversify risk and isolate deals in certain geographic areas.  This geographic isolation is important.  When events occur, all the positions are not impacted - only the ones in the immediate area of the catastrophe event. 
 
3 Proprietary analytics: Most reinsurance firms use the same weather models and datasets that can be purchased from the scientific community. To develop an edge, reinsurance firms must develop proprietary overlays to refine and enhance the models as they pertain to specific perils and/or geographies. A large portion of alpha can be generated through improved accuracy of the risk assessment compared to the off-the-shelf models.
 
4 Risk control: Risk control is extremely important in any reinsurance portfolio. One way to implement this control is to build a portfolio that maximises the Omega Score. While Sharpe Ratio can be appropriately applied to outcomes with normal or near-normal distributions, Omega Score is a more effective way to evaluate risk for the ‘fat-tail’ return distributions found in reinsurance.

offAgecroft Partners

SBAI creates Standardised Total Expense Ratio for alternative investment managers

Tue, 10/03/2017 - 02:34

The Standards Board for Alternative Investments (SBAI), formerly the Hedge Fund Standards Board (HFSB), has created a Standardised Total Expense Ratio (STER) that calculates a single, standardised expense ratio to facilitate better understanding, comparison and monitoring of fees and expenses across alternative investment funds.

STER is the product of an SBAI working group established in 2016 to study fee terms, methodology and definitions. The STER calculation aggregates expenses and management fees charged to, or incurred by, a fund, and includes the costs of research bundled with dealing commissions (often referred to as “soft dollared research costs”).
 
The result is a STER that is comparable across funds – whether the manager deploys a pass-through expense model or not; whether the manager uses “hard” or “soft” dollars to pay for research expenses; and whether or not support services are internal or outsourced. The STER was developed in response to needs amongst institutional investors for a standardised tool to compare and monitor structural costs between alternative investment funds and over time. To make it useful for comparison purposes, STER excludes incentive fees which will fluctuate as a function of performance and trading related costs that will vary significantly and depend on the specific investment strategy. STER is intended to be a ratio that is provided in addition to a fund's existing fee and expense disclosures. Given the benefits of a simple, consistent and transparent comparison of costs among funds and peer groups, the SBAI encourages the industry to start to use the STER methodology.
 
Thomas Deinet (pictured), Executive Director of the SBAI, says: “The STER calculation demonstrates the commitment within the alternative investment industry to providing transparency for the benefit of investors. While the Standards already require full disclosure of fees and expenses, the STER provides a recommended method for aggregating, categorising and disclosing fund costs, including soft dollared research costs, so that investors can more easily understand and compare costs on an ‘apples-to-apples’ basis.”
 
John Richardson, Chief Operating Officer and General Counsel at Ionic Capital Management, says: “The general principles around disclosing fees and expenses are well known in the industry; however, to date there hasn't been a standard methodology for classifying costs and calculating a total expense ratio. The STER should be very useful for both investors and managers in establishing a standardised approach that aids in transparency and comparability.”
 
Adrian Sales, Head of Operational Due Diligence at Albourne Partners, says: “Albourne commends the SBAI for their guidance on a standardised total expense ratio, which will provide greater transparency to investors, and will help both managers and investors understand the typical types of expenses charged to funds.”
 
The paper detailing the STER methodology can be found here. Members of the SBAI Fee Terms and Definitions working group include representatives from Albourne Partners, Caisse de dépôt et placement du Québec, Ionic Capital Management, PAAMCO, The Rock Creek Group, Teacher Retirement System of Texas, Unigestion and Winton Capital.
 
The STER methodology is part of the SBAI Toolbox content, which serves as a guide only and is not formally part of the Standards and the “comply-or-explain approach”. Other Toolbox content and standardised templates include Open Protocol risk disclosure, Administrator Transparency Reporting, a Standardised Board Agenda and a Cyber Security guide.

offProfessional bodiesFlag: alphaq

Guernsey's Private Investment Fund proves a popular route to market

Mon, 10/02/2017 - 07:06

Guernsey’s Private Investment Fund regime was launched in November last year and has so far proved to be a popular route to launch a private fund. As the regime approaches its first anniversary, Annette Alexander (pictured) of Carey Olsen, on behalf of the Guernsey Investment Fund Association, explains the PIF’s key features and the reasons behind its popularity.

Guernsey's new Private Investment Fund (PIF) regime, launched in November 2016, has been keenly welcomed by industry participants. Aimed at circumstances where a special relationship exists between managers and investors, the new regime dispenses with any formal requirements for information particulars such as a prospectus. It is not just the reduced marketing documentation which appeals to the industry: the quick regulatory turn-around is also a major attraction and increases the choices available to fund managers to serve investors' needs whilst reducing both the time and cost to fund launch. With more PIF launches in the pipeline, the regime is a very welcome addition to Guernsey's fund offering and demonstrates Guernsey's responsiveness to the industry's requirements.

What makes a PIF so attractive?

The PIF Rules allow for the fund and all other fund entities (such as associated general partner companies) to be registered and licensed following receipt by the Guernsey Financial Services Commission (GFSC) of one form (Form PIF) together with the application fee. The process takes one business day and no further documentation is required.

As the PIF caters for situations where there is a close relationship between the investors and management, it was anticipated that PIFs were likely to be used by start-ups and small fund managers looking to make their mark. Whilst this has been the case, the PIF has also proved popular within the established sector, with interest from large private equity managers.

GMT Partners, a leading private equity firm focussed on tech-enabled assets, launched the first and second funds of this type in Guernsey. Ashley Long of GMT Partners praised the new fund class, asserting that: "GMT Communications took advantage of the new Guernsey Private Investment Fund to launch its latest fund, the GMT Realisation Fund in April 2017. The one business day fast track approval process was a refreshing approach which enabled GMT Communications and its advisers to concentrate on the commercial imperatives of the transaction with swift execution of the administrative details."

The fast track approach applies to both the licence for the manager and the registration for the PIF with both applications being considered by the Commission in tandem, ensuring that the PIF regime maintains the regulatory efficiency it was created to provide.

The key features of a PIF are:

  • it can be open-ended or closed-ended and may be established as a company, limited partnership or unit trust;
  • there should be no more than 50 investors (or persons holding an ultimate economic interest) in a PIF but there is no restriction on the number of investors a PIF can be marketed to – a feature not available under comparable regimes;
  • there is no requirement to produce information particulars (i.e. an offering document or prospectus);
  • every PIF must appoint a Guernsey licensed manager who is responsible for making certain representations and warranties to the Commission on the ability of investors to suffer losses. No conduct of business rules apply to such licensed manager;
  • except for a period of one year commencing from the date of first subscription, there is a ‘rolling test’ applied on a continuous basis in respect of new investors.  In the previous 12 months, the PIF can add no more than 30 new ultimate investors; and
  • they are subject to the PIF Rules which contain requirements for, amongst other things; managing conflicts of interest, submitting annual returns and submitting annual audited accounts within six months of the period end.

How close is close?

The GFSC does not offer guidance on how managers may become comfortable to provide warranties on the ability of a PIF's investors to sustain loss. What is clear is that a pragmatic and proportionate approach should be employed. Factors for managers to consider include:

  • Is the investor a large institution or a small retail individual?
  • Do they have a track record of investments of a similar size and nature?
  • What percentage of the investor's net assets does the investment represent?
  • How liquid is the investment?

When all is said and done, if the manager is not willing to warrant that the investors can absorb the risk of the investment then it is unlikely that they are sufficiently close to those investors to use the PIF model. The GFSC do advise that the manager cannot simply rely on a representation from an investor in the subscription agreement and must make their own enquiries to satisfy themselves that the investors have sufficient means to invest in the fund. The landmark PIFs kick-starting the trend include a vast continuum of investors, ranging from private individuals to institutional investors, indicating that managers are able to satisfy their own obligations under the PIF rules in a variety of investor scenarios with local experts on hand to provide guidance on such issues.

Managing investor numbers

The PIF has an initial 12 month period during which up to 50 investors can be admitted to the fund. Following the first 12 month period, only 30 investors can be added during any subsequent 12 month period. Naturally, these limits need to be carefully monitored in order to maintain compliance with the PIF Rules and should be recorded in the minutes admitting further investors to the fund.

Unlike registered or authorised funds, in a PIF structure where an appropriate agent is acting for a wider group of stakeholders such as a discretionary investment manager or a trustee or manager of an occupational pension scheme, that agent may be considered as one investor.

So has the reality lived up the hype?

The industry seems to think so – PIFs represented 14 per cent of Guernsey-domiciled fund launches in the three quarters up to the end of June 2017, with more in the pipeline before the end of this year.

Feedback from Guernsey based professionals involved in spearheading the regime has been extremely positive. Amongst these PIF pioneers is Estera's operations director Mel Torode, who explained that: "Estera worked with Carey Olsen to launch a PIF for an existing PE client quite soon after this new category of fund was introduced by the GFSC. The availability of this new product has been very well received by our client base so far and further demonstrates the agility and relevance of Guernsey as a first-class fund jurisdiction. The Carey Olsen team were responsive and knowledgeable during the process, being the first PIF launched by our team."

London based fund managers Pearl Diver, who specialise in securitised products also took the plunge, choosing the PIF regime for its sixth fund. Pearl Diver offers institutional investors access to US and global corporate credit in a structured format through investments in CLO tranches. BNP Paribas Head of Relationship Management Katy Hodgetts added: “Having recently migrated Pearl Diver Capital’s existing funds onto our platform, we were delighted to be appointed as administrator to the new PIF Fund ‘PDC Opportunities VI LP’, further building upon BNP Paribas’ very strong credentials as a leading administrator of debt funds.” 

It is evident that existing clients of Guernsey service providers are keen to explore the PIF regime and that they are able to find the right mix of [enthusiasm] and expertise to guide them through the process.

Looking forward

The development of the PIF follows in the wake of the launch of Guernsey’s Manager Led Product (MLP), a regime adopted in anticipation of the extension to Guernsey of the third country passport under the Alternative Investment Fund Managers Directive (AIFMD). Much like the PIF, the MLP also allows a quick regulatory turn around and provides another option for managers under AIFMD, ultimately giving managers and investors a full range of investment opportunities in Guernsey.
Following on from the MLP, by the introduction of the PIF Guernsey's fund industry continues to innovate and anticipate the needs of fund managers and investors. The island's vibrant fund industry continues to go from strength to strength leading the world in innovation, speed and flexibility for the formation, launch and on-going management of funds.

  offLegal & RegulationFunds

Emerging market currencies face short term correction against long term growth

Mon, 10/02/2017 - 03:58

Ali Chughtai, portfolio manager at USD235 million European macro manager WHARD Stewart, believes that the short term has a real possibility of seeing a correction in emerging market (EM) currencies.

“We have had a reasonable rally in emerging markets and their currencies that arguably started at the beginning of 2016, once the market became comfortable that the worst was possibly over for China,” Chughtai says.

The Chinese stabilisation provided a kind of a catalyst for emerging markets, he says and this rally is now getting mature. “It’s not necessarily due for an end to the rally or the trend, but it would be reasonable to assume given the extent that we will perhaps have a correction unfolding in the next three to four months before the year end. That would be a reasonable expectation.”

Catalysts for change are, he says, difficult to identify but there are quite a few candidates, with the US Federal Reserve leading the field with its rate setting committee which has many vacancies, including from next year, the top job of chair.

The market globally has been very benign on the outlook for inflation with barely one Federal Reserve hike priced in between March of next year and March 2019. “The market is expecting there to be little central bank activity which is aiding the bullish sentiment in emerging markets,” Chugdal says.

General liquid emerging markets are at or near their highs for this cycle at the moment and another driver which has aided this is a weak dollar which has prevailed for the majority of 2017.

“A correction in the dollar and/or in the US equity markets could result in an appreciable move in emerging market currencies given that they have rallied for two years without disturbing the long term trend,” he says.

However, the long term bull case for emerging markets is quite solid, he believes. “The near term correction that may happen aside, there is nothing wrong with long term emerging market value. The demographics and growth is good and most have integrated into the global economy and will continue to grow better than core markets. Over the long term, the case is there and there is nothing wrong with it.

“For those interested in the short to medium term then a correction like this is worth navigating but if you are in it for the longer term over the next five, six or seven years, then it’s less sensitive.”
.
“Emerging markets bring a little bit of diversification, a source of growth that has better long term potential demographics and that is one of the most important driving factors,” Chughtai says. “Emerging markets have favourable demographics with the potential of growing long term.”
 

inhouse contentInvestmentsAsia-PacificFlag: alphaq

Thor Equities and AEW complete GBP180m acquisition of 100 New Oxford Street, London

Fri, 09/29/2017 - 02:53

Thor Equities and AEW have completed the acquisition of 100 New Oxford Street in London’s West End from Tishman Speyer for GBP180 million.

The acquisition was funded through a mix of equity and a new GBP90 million debt facility with Bayerische Landesbank (BayernLB).  AEW acquired its interest in the property on behalf of a joint venture between two German institutional investors. 
 
100 New Oxford Street is a prime mixed-use building located just 100 metres from Tottenham Court Road station, which is currently undergoing a major refurbishment as part of London’s Crossrail development and will provide access to the Elizabeth line which is scheduled to open in 2018.  Europe’s largest infrastructure project, Crossrail is expected to bring an extra 1.5 million people to within a 45 minute commute of Central London. A number of significant retail and residential developments are also underway in the immediate area, including the Centre Point tower, across the road from 100 New Oxford Street, which will include 82 high end apartments, as well as retail and restaurants.
 
Rob Wilkinson (pictured), European CEO at AEW, says: “This area of London has a strong and growing momentum behind it and the transaction reflects our ability to identify and secure high profile, core assets in competitive markets.”
 
100 New Oxford Street has been extensively refurbished and comprises a total of 106,404 sq ft, including 18,507 on the ground floor across six prime retail units and two restaurants, with over 260 ft of street frontage. The remaining 87,897 sq ft consists of Grade A office space over six upper floors. The property is fully occupied by 16 tenants, providing a diverse occupier base, including Shake Shack, Jessops, Costa Coffee and All Bar One on the ground floor, as well as Shisheido, WME Entertainment and Stanhope PLC on the upper floors.
 
Jared Hart, Managing Director of Thor Equities Europe, says: “We are pleased to add 100 New Oxford Street to Thor’s rapidly expanding portfolio of retail and mixed-use properties located in prime areas of London, Paris, Madrid, Milan and other key global cities.”

off

Investors struggle to source attractive hedge funds, says Preqin

Fri, 09/29/2017 - 02:16

Hedge fund investors are reporting increasing difficulty in finding attractive funds in which to invest, according to a survey by Preqin.

In June, almost half of investors said they were planning to reduce their allocations to hedge funds over the next 12 months. Of these, 38 per cent said that three-year performance was the driving factor behind the decision, while a further 16 per cent said their outlook on future performance was negative.
 
When looking to make new fund commitments, investors are faced with a wide dispersion of returns within and between different leading hedge fund strategies. With almost 15,000 hedge funds currently open to investment worldwide, this poses a significant challenge to investors seeking to expand or modify their hedge fund portfolios.
 
Forty-nine per cent of investors plan to reduce their exposure to hedge funds over the next 12 months.
 
Of these, 38 per cent cite three-year performance as the leading reason for reducing exposure, while 16 per cent cite a negative outlook on performance.
 
Forty-eight per cent of investors report that fewer than half of their portfolio hedge funds have met expectations over the past 12 months.
 
When selecting new funds, 76 per cent of investors look for a successful team performance track record, while 54 per cent seek proven experience and 51 per cent desire successful firm-level performance.
 
However, performance can differ between and within leading strategies: interquartile ranges for annualised three-year returns vary from 5.12 per cent for relative value funds to 7.73 per cent for macro strategies funds.
 
As such, investors are more satisfied with some strategies than others. Seventy-six  per cent feel event driven strategy hedge funds have met expectations in H1 2017, compared to just 48 per cent that say the same of macro strategies funds.
 
Investors’ allocation plans vary accordingly. While a third of investors are looking to increase their allocations to relative value hedge funds, and none are looking to reduce exposure, almost equal proportions are looking to increase (15 per cent) and decrease (12 per cent) exposure to multi-strategy funds.
 
There has been significant growth in the number of active hedge funds in recent years, up from 12,500 in 2012, to 14,779 in June 2017.

“Hedge fund investors recognise that the performance of the industry has made some progress over the past year, but they still have serious concerns over the returns generated by funds in their portfolios,” says Amy Bensted (pictured), Head of Hedge Fund Products at Preqin. “Despite the industry posting 11 months of gains in the 12 months to the end of June, half of investors report that half of their portfolio has not met their expectations. Over the longer term, this is even more pronounced: 70 per cent of investors feel that three-year performance has failed to meet their requirements. ”

“Given this dissatisfaction, it is not surprising that underwhelming three-year returns are the foremost reason investors give for reducing allocations. This process is likely to involve reallocation or rebalancing, but in this regard investors are faced with a number of significant challenges. The dispersion of returns between different leading hedge fund strategies is wide, and with thousands of funds pursuing each strategy there is great variance within each as well. There are now almost 15,000 hedge funds open to investment, far more than can be evaluated individually by institutions, and so building an effective portfolio that meets their needs is becoming an ever-larger task.” 


offSurveys & research

Man Group appoints Chief Executive Officer of Man FRM

Wed, 09/27/2017 - 04:12

Man Group has appointed Michael Turner (pictured), as Chief Executive Officer (CEO) of Man FRM, its hedge fund investment specialist. Turner will continue to work closely with Keith Haydon, Chief Investment Officer of Man FRM, and Michelle McCloskey, President of Man FRM and Man Americas, in leading Man FRM’s business, which is overseen by Man Group’s President, Jonathan Sorrell. 

Turner will join Man Group’s Executive Committee, in addition to continuing to lead Man FRM’s Management Committee.
 
Turner has served as Chief Operating Officer (COO) of Man FRM and a member of Man FRM’s Management Committee since 2012. As COO of Man FRM, Michael has been responsible for investment infrastructure within Man FRM as well as overseeing the teams responsible for quantitative analysis, managed accounts and client services. Prior to joining Man FRM in 2007, Michael was Head of Research at Aspect Capital and Quantitative Research Analyst at Schroder Salomon Smith Barney.
 
Turner will be succeeded as COO of Man FRM by Rachel Waters, who joined the firm in 2005. Rachel previously worked alongside Michael as Deputy COO, focusing on understanding and addressing the tactical and strategic needs of the business.
 
Haydon says: “Having worked closely with Mike at Man FRM for over a decade, I am delighted to congratulate him on his new role as CEO. This appointment reflects the transformation of Man FRM’s business in recent years as we evolve into a provider of customised solutions for our clients. Mike’s leadership will be instrumental as Man FRM continues to grow and diversify its offering and increase collaboration across the Man Group platform.”
 
Sorrell says: “There has been a meaningful advancement of Man FRM’s business model in recent years, with particular emphasis on developing services for our clients which can leverage the resources and expertise of the whole of Man Group. Our investment in technology and infrastructure, and existing in-house capabilities as an experienced investor in hedge funds, have allowed us quickly scale our managed account platform to meet our clients’ needs in this area. As part of Man FRM’s Management Committee, Mike has played a key role in the success of Man FRM globally, and I look forward to working with him in his new leadership role.”
 
Turner says: “We have seen a transformative decade for Man FRM’s business and I am looking forward to taking on the role of CEO as the business continues to grow and develop. Through continuing our focus on performance and client service, as well as leveraging Man Group’s scale and investment expertise as we continue to diversify our offering, we are well positioned to meet the changing needs of institutional investors globally.”

offMoves & Appointments

Guernsey's Private Investment Fund proves a popular route to market

Tue, 09/26/2017 - 06:01

Guernsey’s Private Investment Fund regime was launched in November last year and has so far proved to be a popular route to launch a private fund. As the regime approaches its first anniversary, Annette Alexander (pictured) of Carey Olsen, on behalf of the Guernsey Investment Fund Association, explains the PIF’s key features and the reasons behind its popularity.

Guernsey's new Private Investment Fund (PIF) regime, launched in November 2016, has been keenly welcomed by industry participants. Aimed at circumstances where a special relationship exists between managers and investors, the new regime dispenses with any formal requirements for information particulars such as a prospectus. It is not just the reduced marketing documentation which appeals to the industry: the quick regulatory turn-around is also a major attraction and increases the choices available to fund managers to serve investors' needs whilst reducing both the time and cost to fund launch. With more PIF launches in the pipeline, the regime is a very welcome addition to Guernsey's fund offering and demonstrates Guernsey's responsiveness to the industry's requirements.

What makes a PIF so attractive?

The PIF Rules allow for the fund and all other fund entities (such as associated general partner companies) to be registered and licensed following receipt by the Guernsey Financial Services Commission (GFSC) of one form (Form PIF) together with the application fee. The process takes one business day and no further documentation is required.

As the PIF caters for situations where there is a close relationship between the investors and management, it was anticipated that PIFs were likely to be used by start-ups and small fund managers looking to make their mark. Whilst this has been the case, the PIF has also proved popular within the established sector, with interest from large private equity managers.

GMT Partners, a leading private equity firm focussed on tech-enabled assets, launched the first and second funds of this type in Guernsey. Ashley Long of GMT Partners praised the new fund class, asserting that: "GMT Communications took advantage of the new Guernsey Private Investment Fund to launch its latest fund, the GMT Realisation Fund in April 2017. The one business day fast track approval process was a refreshing approach which enabled GMT Communications and its advisers to concentrate on the commercial imperatives of the transaction with swift execution of the administrative details."

The fast track approach applies to both the licence for the manager and the registration for the PIF with both applications being considered by the Commission in tandem, ensuring that the PIF regime maintains the regulatory efficiency it was created to provide.

The key features of a PIF are:

  • it can be open-ended or closed-ended and may be established as a company, limited partnership or unit trust;
  • there should be no more than 50 investors (or persons holding an ultimate economic interest) in a PIF but there is no restriction on the number of investors a PIF can be marketed to – a feature not available under comparable regimes;
  • there is no requirement to produce information particulars (i.e. an offering document or prospectus);
  • every PIF must appoint a Guernsey licensed manager who is responsible for making certain representations and warranties to the Commission on the ability of investors to suffer losses. No conduct of business rules apply to such licensed manager;
  • except for a period of one year commencing from the date of first subscription, there is a ‘rolling test’ applied on a continuous basis in respect of new investors.  In the previous 12 months, the PIF can add no more than 30 new ultimate investors; and
  • they are subject to the PIF Rules which contain requirements for, amongst other things; managing conflicts of interest, submitting annual returns and submitting annual audited accounts within six months of the period end.

How close is close?

The GFSC does not offer guidance on how managers may become comfortable to provide warranties on the ability of a PIF's investors to sustain loss. What is clear is that a pragmatic and proportionate approach should be employed. Factors for managers to consider include:

  • Is the investor a large institution or a small retail individual?
  • Do they have a track record of investments of a similar size and nature?
  • What percentage of the investor's net assets does the investment represent?
  • How liquid is the investment?

When all is said and done, if the manager is not willing to warrant that the investors can absorb the risk of the investment then it is unlikely that they are sufficiently close to those investors to use the PIF model. The GFSC do advise that the manager cannot simply rely on a representation from an investor in the subscription agreement and must make their own enquiries to satisfy themselves that the investors have sufficient means to invest in the fund. The landmark PIFs kick-starting the trend include a vast continuum of investors, ranging from private individuals to institutional investors, indicating that managers are able to satisfy their own obligations under the PIF rules in a variety of investor scenarios with local experts on hand to provide guidance on such issues.

Managing investor numbers

The PIF has an initial 12 month period during which up to 50 investors can be admitted to the fund. Following the first 12 month period, only 30 investors can be added during any subsequent 12 month period. Naturally, these limits need to be carefully monitored in order to maintain compliance with the PIF Rules and should be recorded in the minutes admitting further investors to the fund.

Unlike registered or authorised funds, in a PIF structure where an appropriate agent is acting for a wider group of stakeholders such as a discretionary investment manager or a trustee or manager of an occupational pension scheme, that agent may be considered as one investor.

So has the reality lived up the hype?

The industry seems to think so – PIFs represented 14 per cent of Guernsey-domiciled fund launches in the three quarters up to the end of June 2017, with more in the pipeline before the end of this year.

Feedback from Guernsey based professionals involved in spearheading the regime has been extremely positive. Amongst these PIF pioneers is Estera's operations director Mel Torode, who explained that: "Estera worked with Carey Olsen to launch a PIF for an existing PE client quite soon after this new category of fund was introduced by the GFSC. The availability of this new product has been very well received by our client base so far and further demonstrates the agility and relevance of Guernsey as a first-class fund jurisdiction. The Carey Olsen team were responsive and knowledgeable during the process, being the first PIF launched by our team."

London based fund managers Pearl Diver, who specialise in securitised products also took the plunge, choosing the PIF regime for its sixth fund. Pearl Diver offers institutional investors access to US and global corporate credit in a structured format through investments in CLO tranches. BNP Paribas Head of Relationship Management Katy Hodgetts added: “Having recently migrated Pearl Diver Capital’s existing funds onto our platform, we were delighted to be appointed as administrator to the new PIF Fund ‘PDC Opportunities VI LP’, further building upon BNP Paribas’ very strong credentials as a leading administrator of debt funds.” 

It is evident that existing clients of Guernsey service providers are keen to explore the PIF regime and that they are able to find the right mix of [enthusiasm] and expertise to guide them through the process.

Looking forward

The development of the PIF follows in the wake of the launch of Guernsey’s Manager Led Product (MLP), a regime adopted in anticipation of the extension to Guernsey of the third country passport under the Alternative Investment Fund Managers Directive (AIFMD). Much like the PIF, the MLP also allows a quick regulatory turn around and provides another option for managers under AIFMD, ultimately giving managers and investors a full range of investment opportunities in Guernsey.
Following on from the MLP, by the introduction of the PIF Guernsey's fund industry continues to innovate and anticipate the needs of fund managers and investors. The island's vibrant fund industry continues to go from strength to strength leading the world in innovation, speed and flexibility for the formation, launch and on-going management of funds.

  offLegal & RegulationFunds

New long/short fund aims to profit from disruption

Tue, 09/26/2017 - 03:33

Eurof Uppington (pictured) is the manager of disruptive innovation strategy at EUR1.5 billion Quaero Capital.

The former long/short technology fund manager is launching a long/short market neutral fund for Quaero, designed to focus on the unexpected pace and impact of radical change. Three areas in particular will benefit from disruption, he believes. Factory automation, pharmacy and the retail sector.

“There is a confluence of different trends,” he says. “Technologies are becoming sufficiently cheap and fool proof for them to be used by everybody.”

The technologies of computing, connectivity, the internet of things, artificial intelligence and robotics automation are part of a new industrial revolution, Uppington says. “Previous industrial revolutions were about moving heavy objects or creating power or getting goods transferred from A to B.

“Then it was about creating the telegraph, the telephone, radio, television and then the internet and what’s really happening is that the internet has made everything step up a gear which affects everything.”

For Uppington, these exponential processes are having their effects in the real world. “Airbnb is the largest hotel group but owns no hotel rooms, while the biggest taxi company owns no cars. Every industry has some weird stuff happening and the rapid change in industries creates winners and losers.”

The fund will launch with USD7 million under management and has been run as a model portfolio since November last year, returning just over 12 per cent year to date. It’s made money on both the long and short side on the back of capturing strong trends, Uppington reports.

As a technology fund manager, Uppington found he was increasingly less interested in looking at the so-called FANG companies of Facebook, Amazon, Netflix and Google, as they dominated technology offering few opportunities for diversification.

“However, their technology has disrupted other companies,” he says. “People don’t understand the effect of these technologies in insurance or capital goods or real estate or travel. That’s the road less travelled that we are trying to travel on.”

Some of the firms in which Uppington’s model portfolio is invested include Honeywell and Siemens, where he is looking at the opportunities offered by increasing factory automation.
Non-industrial companies in his portfolio include Adidas’ Speedfactory and the gap with Nike in producing athletic footwear. Pharmaceutical is another sector attracting his attention with speculation rife that Amazon has ambitions to expand into pharmaceutical through acquisition or organic growth.

Uppington is shorting offline retail food chains from the chains themselves to mall owners and REITs. He believes that potentially the most shattering effect could be felt by those who finance the REITs, nearly all of whom are heavily indebted. His first short in this area is BOK Financial, a local US bank with around 15 per cent exposure to mall operators. 

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