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hFMWeek

S pecial r epo r t

h o w t o s ta r t a h e d g e
fund in the us 2011
DIstributed with HFMWeek

LAUNCHES
All the essential information for first-time fund managers

REGULATION
Updates on federal and state legislation covering hedge funds

RESPONSIBILITY
The widening spectrum of administrative services

featuring Concept Capital // ifna // Sadis & Goldberg LLP //


SS&C // US Bancorp // VITEOS

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h o w t o s t a r t a h e d g e f u n d i n t h e US 2 0 1 1 a d m i n i s t r at i o n

the co m p l e t e
pac k ag e
derak adler of ifina talks to HFMWeek about how the primary development fund provides a fast, simple and
cost-effective solution for fund managers

T
he journey from start-up to becoming a well approximately 50% of the normal rate for establishing the
established and recognised fund can be a long fund. The individually tailored and regulated Segregated
and challenging process. Increased regulatory Portfolio/Sub Fund will provide managers with the abil-
restrictions and reluctant investors are making ity to select their ‘own’ named fund as well as the oppor-
fund launches harder than ever for emerging tunity for ‘non-regulated’ managers to act as investment
managers. HFMWeek talks to Derek Adler of manager to their fund. This does not prevent the sub-fund
ifina about the launch of its new product, Primary Devel- launching in its own right and breaking away from the
opment Fund, and how this aims to provide a complete umbrella structure at any point in the future. Therefore,
service package that can give start-up funds a competitive not only are there substantial savings in the initial launch
advantage with minimal costs involved. stages of the fund and with the ongoing charges but there
Derek Adler ACSI is is also the flexibility to convert to a standalone fund in the
domiciled in the UK and HFMWeek (HFM): Can you tell me about the new product future if the manager wishes. The PDF and its low-cost
during his career in the you are launching? basis provide the manager with the opportunity to build
City of London has been Derek Adler (DA): We are offering a track record while the fund be-
regulated by the FSA and a new service in the form of Primary comes established, which will also
NFA. Educated in England Development Fund (PDF) in Cay- enable further capital to be raised.
and Switzerland, he is man, which will provide fund man- This process also minimises
a director and founding agers with administration, auditing, The Primary the problem of major investors
member of ifina, a fully director and legal functions as part wishing to invest only in well-es-
licensed fund administrator. of a complete service package. The Development Fund tablished funds.
underlying value of PDF is to pro- The costs involved in this prod-
vide a fast, simple, effective solution provides the manager uct are really the main advantage
for managers in a regulated market for emerging managers as normal
and this umbrella fund platform is with the opportunity operational costs can be a big de-
ideally created for managers in start- terrence for managers considering
up situations or emerging invest- to build a track record the launch of their own fund, due
ment managers with very low assets to a lack of initial seed capital. Even
under management. whilst the fund once the fund has been launched,
It provides a low-cost solution delays in raising further assets can
by avoiding the higher fees of the becomes established, also hinder the success of the fund.
traditional standalone funds and is To minimise the burden of setting
ideally suited for fund assets of be- which will also enable up the fund, all the manager needs
tween $1m and $10m, uncapped. to decide is the choice of jurisdic-
This cost-effective start-up solution, further capital to tion. This new service will be of-
which provides competitive ongo- fered to clients on a global basis
ing annual operating costs to assist be raised and while available in a number of


the manager, will include monthly regulated jurisdictions, the initial
administration, valuation and share focus will be in Cayman, although
registry services, as well as direc- a BVI structure is already under-
tional services and an annual audit. way. Other jurisdictions such as
It will work out of the Cayman Islands as the primary off- Malta are also available but more expensive and addition-
shore jurisdiction, which will be regulated by the Cayman ally with some restrictions. The advantage of being estab-
Islands Monetary Authority but can work across other juris- lished in Cayman is that this service can be offered to man-
dictions depending on the needs of the investment manager. agers who have not yet become regulated and therefore
the conditions for this product are extremely favourable
HFM: How exactly will it work and how will it help new for investments managers looking to expand.
launches?
DA: A fund will be established as a segregated sub-fund of HFM: Who else is involved and what do they contrib-
Primary Development Fund Ltd. Managers will be charged ute to the platform?

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h o w t o s t a r t a h e d g e f u n d i n t h e US 2 0 1 1 a d m i n i s t r at i o n

DA: The platform is supported by trusted, inter- in the same jurisdiction. However, the PDF prod-
nationally recognised institutions and is available uct is cheaper than its rivals because its cost base
at an all inclusive cost. We offer a complete pack- is cheaper, partly because the Cayman Islands is
age whereby ifina group will be the administrator Key to the business less expensive than Luxembourg and also because
partnered with Barclays Bank (Isle of Man) as its partner companies have agreed to provide their
the bank account, MF Global Direct as the bro- model is the fact services at a substantial discount. The set-up charge
ker account, Baker Tilly (Cayman) Limited as is around 40% to 50% cheaper than would typically
the auditor and Solomon Harris as the law firm. that in Cayman, fund be the case if ifina were to set up a standalone Cay-
The affiliation with these companies will also give man fund for a client, while the auditors’ and direc-
managers the advantage of reduced fees across managers do not have tors’ fees being provided to PDF clients are 50%
the board, due to economies of scale. lower than they would be on the open market. Key
to be regulated, as the to the business model is the fact that in Cayman,
HFM: Have you had much interest from US fund managers do not have to be regulated, as the
managers in the platform and how can it be of regulatory burden is regulatory burden is placed on the fund’s adminis-
particular use to them? trator, which in the case of sub-funds of the PDF
DA: Yes, the PDF has attracted attention from placed on the fund’s would fall to ifina.
even more managers in the US seeking such a
product for start-up funds. We are looking to administrator HFM: What new challenges will current regu-


launch a US version onshore very soon to accom- latory changes bring to fund administrators in
modate the interest we have received. 2011?
DA: Many of the changes that have been made and
HFM: What makes ifina’s new structure many of the new rules that have been introduced
unique in this space? are more likely to affect the larger hedge funds and fund
DA: The concept is not unique but the choice of jurisdic- of funds. This is not the case relating to smaller funds,
tions is. We offer the PDF out of BVI, Malta and Cayman particularly those trading derivatives and start ups, which
which I believe is unusual. In addition, we propose a very the PDF will cater to, focusing on the needs of traders
competitive pricing structure and a complete package of with relatively small amounts of capital. The PDF exists
top institutional contributors to the platform. This enables to provide a cost-effective structure that permits traders
emerging managers to start their own fund in a regulated to have the opportunity to have a controlled and regulat-
and controlled environment, which is unique. The PDF ed environment in which to manage money, without hav-
concept is similar to one used by other operators such as ing to worry themselves about such burdensome regula-
KMG Sicav-SIF SA, based in Luxembourg, which involves tory details as capital adequacy requirements, or having
the creation of a fund platform that enables third parties to fill out thousands of forms. The PDF gives investors a
to launch their own funds quickly, cheaply and with less structure that’s fully regulated, in which they can build
attention to regulation than if they were to do so directly up a track record as a money manager. n

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