We are all more than aware exactly how much the fund management landscape has changed. For the offshore funds industry, the future is perhaps a little difficult to predict.
Most businesses currently operating in the field will all be reviewing their business models to try and gain competitive advantage. The key questions all players will be asking themselves are; ‘how do we maintain our competitiveness and how do we grow our business?’
For those brave individuals who are considering starting up new entities at this time, seed capital is likely to be difficult to source which makes decisions around organisational resourcing, including the appointment of administrators, quite difficult to make.
Constructive Collaboration
In practice, we have found that an effective approach, whatever the situation, is for both parties to be creative and enter into collaborative, partnership arrangements - ones where both sides recognise the need to be open, transparent and flexible on time invested and the fee and incentive structures.
Not referring to the soft, management-speak type of partnership but one that can deliver real value. Where a prospective investment manager recognises that they do not have the required breadth of experience, nor the means at launch to procure those resources, it may be wise for them to engage with a service provider who is willing to operate on a deeper level. For example, committing director time to collaborate more thoroughly, on items such as the structure, administration processes, fundraising options and many more matters, can prove invaluable. The fully engaged administrator can provide experience from a range of previous assignments and projects, replacing some of the need for the investment manager to recruit dedicated staff. This can reduce the financial burden, short-cut decision-making and can make the whole project more likely to launch.
Obviously, this approach means that both parties need to be flexible with fee arrangements. The administrator invests time and effort to assist the investment manager in exchange for longer-term gains.
Partnerships in Practice
We have worked with a few clients recently where we have developed this sort of partnership solution. The results so far have been very satisfactory. For example, we were approached at the end of last year by a financial consultant. He specialises in real estate financing and over the last couple of years had developed an innovative financing model for real estate investing.
Having perfected the concept and begun discussions with various counterparties for the establishment of an investment structure, he approached Fund Corporation with a view to us providing administration services. We spent some time talking through the steps from concept to launch and it became clear that there were significant obstacles to be overcome. Our client did not possess all the relevant experience or available assets to easily deliver the resources required to get the concept ‘over the line’. He also could not commit to a standard launch fee arrangement. We had a strong sense that the investment rationale, and therefore opportunity, was attractive. We were willing to be entrepreneurial and quickly came to an agreement on how we would help in the development and launch of the structure in exchange for longer term partnership arrangements.
Taking the Long View
With another client, the credit crunch came at an interesting time, meaning that they delayed launch plans and had the opportunity to re-appraise their overall business plan. As a result our original relationship needed re-assessment. Over several months we discussed the changing market opportunities and challenges of funding during such uncertain times. Instead of imposing the strict terms of our contract we agreed to wait and see what might develop. As it turns out, our client now has significant market opportunities and we have agreed a long-term joint venture with which both sides are happy. All this was made possible as a result of the honest, robust relationship built through difficult times.
However, these in-depth, partnership solutions are not for everyone. Larger investment managers may have strong enough in-house teams so that all they need is a pure outsourced service provider. The range of services required may be limited. Administrators may not have the experience, or inclination, to put in the investment that the partnership solution requires. However, for those of us who can, it provides significant attraction in terms of the quality of client relationships and financial reward; but importantly given today’s market, it gives a boost to the chances of new investment managers successfully launching.
Paul Everitt, Managing Director, Fund Corporation of the Channel Islands Ltd
