Fund Hosting Platform for Public Markets

Client-Specific Concerns

An Asian government fund was significantly expanding its international equity allocation and sought support with manager selection, as well as the implementation of an external fund hosting solution to facilitate effective management and oversight of the US$ 4 billion equity portfolio. This case study focuses on the fund hosting aspect of the engagement.

Source: Sector in Brief: Asset Owner Investment Vehicles, bfinance 2021

In keeping with its domestic regulatory requirement to invest via fund-of-one structures, the investor was aiming to work with a provider to create an ‘umbrella’ fund-hosting platform domiciled in Luxembourg or Ireland that would allow access to dedicated sub-funds for the nine equity managers. The partner needed to be able to provide all relevant support including fund structuring, obtaining regulatory approvals, appointing service providers such as fund administrators, conducting manager due diligence, setting up performance reporting and so forth. Although the platform was for global equities, the investor also wanted to have the flexibility to add fixed income strategies as needed.

Demonstrable experience in structuring similar solutions was an essential prerequisite for this client. Other areas of focus included: parallel onboarding of external investment managers; reducing implementation and operational costs through economies of scale; improving the efficiency of operating structures (e.g. centralising services from third-party service providers); flexibility and speed in future portfolio changes; timely client-support with on-the-ground presence in Asia.

Outcome

• Identifying potential partners. The list of invitees for this tender was pre-screened to meet the investor’s ambitious implementation deadlines. The client preferred management companies with experience and scale in both Irish and Luxembourg structures—a rare commodity in the European market although that picture is improving.
• Providing clear comparison of complex offerings. The design and implementation of a new fund hosting platform is a complex undertaking with multiple parameters to consider including domicile, legal structure, service providers, attendant costs, tax efficiency, sub-funds versus fund sleeves and more. The services provided by different management companies can also vary widely, too: some offer more technical support; others provide a consultancy-like approach. A structured tender process allowed the client to compare proposals from diverse providers, with meaningful and transparent rankings across the relevant parameters.
• Reducing cost: Fees for a bespoke fund hosting platform can quickly run into the billions. Fee structures and levels vary considerably: the most expensive proposal was twice as expensive as the cheapest. Clear analysis allowed the client to assess the range of potential fees for the platform design and hosting process. The tender process helped to create competition, driving fee reductions.