Annette Stack Director
Weighing up the benefits of hosted vs standalone platforms
29th January, 2021
Investment managers (“IMs”) seeking to access new markets and investor flows in Europe by establishing a regulated fund have many options to consider. Primary among these is whether they should launch the fund on a third-party hosted platform or establish a proprietary, standalone platform. In this paper we outline the key points to consider in making that decision.
Hosted platform
Third-party hosted platforms have become increasingly popular in recent years. Given the increasing harmonisation of regulatory compliance requirements for funds operating under the UCITS and AIFMD directives, hosted formats are available that support both UCITS and Alternative Investment Funds (“AIFs”). At a basic level, a third-party hosted platform is an umbrella fund structure operated by a management company (“ManCo”). The platform comprises multiple sub-funds (or compartments), each with segregated liabilities and operating its own investment strategy.
Different models of hosted platform
Clearly, any IM considering a platform approach will, as a priority, want to ensure that there is no diminution in its relationship with its underlying investors or indeed to the value of its brand. The approach adopted by the relevant platform manager is therefore crucial in this regard. From a Davy Global Fund Management (“DGFM”) perspective, given our heritage in asset and wealth management, these considerations have been central to the design of our UCITS and AIF platforms. The process outlined below describes the platform model operated by DGFM.
Hosted platform practicalities
A crucial element of DGFM’s platform offering is that the IM is a directly appointed delegate. This maintains the IM’s direct link to the investment strategy of its sub-fund and ensures there is no dilution of the IM’s brand in terms of the sub-fund’s naming convention, marketing strategy or investment story. It also ensures that the underlying investors identify directly with the IM and view the platform simply as supporting the operational and regulatory infrastructure.
This infrastructure is in turn supported by independent service providers that undertake the requisite fund administration, depositary and audit services. The agreements with these service providers have been pre-negotiated by DGFM, which streamlines the legal set-up process. The end result is a turnkey solution that sees the IM “plug” into” an established operating and regulatory framework. This allows a more efficient product development process with clear speed-to-market advantages.
Distribution remains the prerogative of the IM, who is free to select his own sub-distributor or preferred distribution channel. The ManCo will then, subject to completion of satisfactory due diligence, legally delegate this role to the selected party.
Key benefits of a hosted platform |
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Limitations of a hosted platform |
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Standalone platform
While we continue to see increased interest from investment managers looking to launch funds on hosted platforms, there is also ongoing demand from investment managers wishing to establish their own proprietary standalone platforms.
There are many reasons why investment managers might wish to establish their own proprietary standalone platform. In our experience these reasons generally fall into one of three categories:
(1) The IM doesn’t have a corporate culture of outsourcing and instead wishes to control all aspects of running the platform, including the appointment of all service providers and the fund’s board of directors.
(2) The IM plans to launch multiple sub-funds that will gather significant assets under management, thus making the proposition of a standalone platform economically viable.
(3) The IM has the required financial resources and in-house expertise to support the setup and ongoing operation of a standalone proprietary platform.
Factors to consider when establishing a standalone proprietary platform |
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Regulatory environment
The regulatory framework that governs the funds industry is constantly evolving as regulators seek to: (1) improve investor protection, (2) increase transparency and (3) harmonise the application of EU regulations for cross-border funds.
A core principle of the European regulatory framework is that an EU-regulated fund platform has the required resources and expertise to ensure that the fund is managed and operated in line with European regulations. Historically, it was common practice to establish a Self-Managed Investment Company (SMIC) that was governed by the fund’s board of directors. In recent years the regulations have required that EU funds are managed by an entity with sufficient local substance to support the regulator in performing its supervisory role.
These developments leave IMs with two potential options to get their funds to market, either:
(1) appoint an EU-based third-party ManCo, such as DGFM, to perform oversight at a level commensurate with the regulations, or
(2) establish their own EU ManCo or MiFID entity for the same purpose.
IMs who consider the latter approach must obtain the requisite MiFID or ManCo regulatory licence, the approval of which is predicated on an ability to demonstrate that the necessary resources with the required expertise have been employed to support the nature, scale and complexity of the business.
How DGFM can help you navigate the EU funds landscape
Davy Global Fund Management is an EU-based management company that also has offices in the UK and the USA and is 100% employee owned. DGFM works with global investment managers seeking to establish a European footprint either via a hosted platform or through establishing their own proprietary platform. Our team combines practical experience with sound regulatory and technical expertise to support and guide you through your fund’s life cycle, regardless of the fund structure you choose. If you are an investment manager entering the EU funds environment for the first time, we would be delighted to help you navigate the EU funds landscape working in a guided and supportive partnership.
For more information and to discuss your requirements, please contact:
+353 1 614 8830
The information discussed in this article does not purport to be comprehensive or all inclusive. It does not constitute an offer for the purchase or sale of any financial instrument, trading strategy, product or service. No one receiving this document should treat any of its contents as constituting advice or a personal recommendation.
Davy Global Fund Management Limited (“DGFM”), trading as Davy Global Fund Management, is regulated by the Central Bank of Ireland (‘CBI’). In the UK, DGFM is authorised by the CBI and is subject to limited regulation by the Financial Conduct Authority (‘FCA’). In Luxembourg, DGFM is authorised by the CBI and is subject to limited regulation by the Commission de Surveillance du Secteur Financier (‘CSSF’).
Davy Global Fund Management Luxembourg S.A. (‘DGFMSA’) is registered with the RCS under no. B124965 with the registered office at 1, rue Hildegard von Bingen, L-1282 Luxembourg, G.D. Luxembourg. DGFMSA is supervised by the CSSF as Management Company authorised under Chapter 15 of the Law of 17 December 2010 with number S00000727 and Alternative Investment Fund Manager according to the Law of 12 July 2013 with number A00000148.
Details about the extent of our authorisation and regulation by the CBI, FCA and CSSF are available from us upon request.