Alternative managers considering launching on a UCITS platform must weigh the benefits of accessing bank and asset manager distribution networks against potential cost savings and increased freedom in the independent space, according Cerulli.
While standardised bank and asset manager platforms can offer potentially game-changing distribution for subadvisers, independent platforms are usually cheaper and more flexible, Cerulli Associates, a global research and consulting firm, said today.
“Selection for a major platform does not guarantee huge inflows, with industry assets under management heavily skewed toward a minority of funds with long track records,” said Justina Deveikyte, associate director of European institutional research at Cerulli. “The combination of platform fees and restrictions on investment strategy by operators may exacerbate the issue of performance erosion often associated with operating under the UCITS framework, making platforms unattractive for some alternative managers.”
With offshore capital-raising under pressure, alternative managers are increasingly turning to standardized UCITS structures to extend their reach in Europe, despite the inherent challenges that come with adapting hedge fund and other complex strategies to fit Europe’s highly regulated framework.
Deveikyte said that for those unfamiliar with the UCITS structure, partnering with a platform can be a convenient option. Platforms not only offer a plug-and-play solution with fast set-up and a minimal administrative burden, they also come with established distribution networks. “This is ideal for managers that may not necessarily have the capital, track record, or internal sales capability to launch a standalone fund, as well as ex-European managers that would rather not apply for a full alternative investment fund license in Europe,” she pointed out.
The sheer speed with which a fund can get up and running may also make platforms attractive to larger, more-established managers that simply want to quickly access the growing UCITS investor base.
However, Cerulli explained, platforms are not for every alternative UCITS manager. While the subadviser retains general control over asset selection and the operator is responsible for risk control and regulatory compliance, the platform operator technically becomes the manager of the fund once it is onboarded, and platform agreements will often prohibit the use of certain instruments or investments. This can be particularly restrictive for hedge funds and alternative managers used to having total freedom in how they execute their strategies.
“Platform fees can also make pricing uncompetitive when compared to offshore funds and, given that operating under a UCITS wrapper has the potential to erode performance due to the restrictions on risk and leverage, this additional ongoing cost layer can be off-putting in the enduring low-return environment,” said Deveikyte.