Fund administrator Custom House Global Fund Services has launched a Sicav umbrella fund platform for start-up or emerging managers.
The Nascent Fund will enable managers with assets under management between $5 million and $10 million to establish funds without many of the costs associated with a standalone fund. The Maltese-domiciled platform will provide managers with administration, auditing and legal services.
Dermot Butler, chairman of Custom House, said ordinary operational costs can hamper start-up managers, many of whom are reliant on receiving seed capital from friends and family. Start-up managers have also increasingly found it difficult to raise assets as established investors are playing safe and tending to invest in established, larger funds.
This and a contraction in the amount of seed capital available has made it difficult for start-ups to reach critical mass. The funds will be established as segregated sub-funds of Nascent Fund. Butler said managers will be charged €8,000 to set up a sub-fund and will then be offered a discounted rate of 20 basis points for auditing services plus administrative fees to cover operational expenses.
Diminishing cross-collateral risk for the sub-funds is possible through the segregated structure. Managers can also leave the platform to re-establish the sub-fund as a standalone, independent entity when they have a proven track record or assets under management have grown to a size that supports separating from the platform. Most managers expect to do this within two to three years of trading.
“It is like a father giving his son a leg up in the housing market,” explained Butler, referring to the infrastructure the platform offers.
He acknowledged initially the venture will make a small loss, although he predicted it would generate revenue within a year as managers start to make profits.
Helping start-up funds, he hopes, will have long-term benefits, according to Butler. “If we help the fund manager now, we have got a client for life. A lot of them may fail but some will do okay and might end up with a $50 million to $100 million fund. A few might become Paulsons,” he added.
Custom House will be marketing the service globally. A significant number of clients are expected to be European, seeing Malta as an attractive and cost-effective domicile, according to Butler.
The only condition for joining the platform, said Butler, is that the manager must be regulated by a respected authority.
Butler did not believe investor reluctance to seed untested managers would be an issue if they were on the platform.
Administrative services will be provided by Custom House, while Malta legal firm Ganado & Associates are legal advisers. Another Malta firm, UHY Pace Galea Musù & Co, is the auditor for the platform.