We have written this article because we believe that all Prospective Managers, especially new managers, should consider the merits of operating their strategy via a Platform. Managing a regulated entity is a serious responsibility. We find that many Prospective Managers prefer leaving that responsibility with others and leaving them more time to concentrate on their investments.
WHAT IS A FUND OR ASSET MANAGEMENT “PLATFORM”?
We consider a Platform to be an entity (normally licensed or registered with the MAS) that either (1) manages multiple funds managed by segregated investment managers, often across multiple strategies and asset classes or (2) offers external asset management services, including managing segregated mandates. A Platform provides middle and back office operational support (such as office space, compliance and IT support) to the Prospective Managers in exchange for an agreed fee. The fee is often a percentage of the Prospective Manager’s assets under management and can be subject to a minimum or maximum fee.
HOW ARE PLATFORMS REGULATED?
Some fund or asset management strategies do not require a license from or registration with the MAS. If the strategy requires a license or registration, the Platform will have a legal entity which possesses the required license or registration. This entity will hire or appoint one or more natural persons to manage the particular strategy. These people will be regulated “representatives” of the Platform.
WHAT ARE THE ADVANTAGES/DISADVANTAGES OF A PLATFORM?
There are no absolutes with respect to the pros and cons of a Prospective Manager using a Platform. However, we think the following general observations are fair.
The potential advantages include:
- Capital efficiency – The Platform will already meet the base capital requirements for a regulated fund management company. A Prospective Manager would have to maintain a minimum base capital of S$250,000 to operate as a registered fund management company (“RFMC”).
- Speed – If a Prospective Manager wants to launch quickly, launching via a Platform is likely to materially accelerate the timetable by at least three to five months compared to setting up a registered fund management company.
- Certainty – If a Prospective Manager applies for a license or registration, no one can guarantee that the necessary regulatory approvals are obtained within any timeframe or at all.
- Maintaining focus – Many Prospective Managers want to concentrate on their investment strategy rather than the operational logistics of managing a MAS-regulated entity. Utilizing a Platform allows such managers to concentrate on what they are interested in/do best.
- Flexibility
- to to start with just one person – While a RFMC or Licensed Fund Management Company (“LFMC”) requires you to have at least 2 full-time, Singapore based employees each with at least five years of relevant experience, a Prospective Manager can usually start with only one person via a Platform; and
- to increase assets under management – If the Platform is a Licensed Fund Management Company (“LFMC”), the Prospective Manager would not necessarily be limited to S$250 million assets under management. Applying to upgrade a RFMC to a LFMC could potentially take 10 months to be approved.
- Tested infrastructure and experience – Unlike starting a fund management company from scratch, a Prospective Manager (as well as potential investors) may take comfort from a Prospective Manager utilizing a Platform that has battle-tested operating and compliance systems. In addition, Platforms may have experience in newer investment strategies or structures (such as investing in cryptocurrencies) that a Prospective Manager may otherwise find challenging to navigate.
- Cost – Although this may vary depending on all the facts and circumstances, we ordinarily expect the ongoing costs of a Platform to be lower than operating a fund management company independently.
- Fundraising – A Platform may be able to assist a Prospective Manager with raising funds.
The potential disadvantages include:
- Lack of control – The Prospective Manager is subject to the terms and conditions of the Platform. As a result, the Prospective Manager may be restricted in:
- the investors the Platform can onboard;
- the Prospective Manager’s investment strategies;
- establishing risk and compliance requirements; or
- any other matters which would normally affect an employee.
- Branding – If a Prospective Manager wishes to build an independent brand or track record, that may be more difficult within the context of a Platform.
HOW DOES A PROSPECTIVE MANAGER LEAVE A PLATFORM?
Exiting a Platform is governed by the contract the Prospective Manager agrees with the Platform. Prospective Managers should consider whether the Platform charges an exit fee or requires any ongoing economic participation once the Prospective Manager has left the Platform. However, watching the Platform operate for a period of time may prove useful when a Prospective Manager wants to operate a fund management company on its own.
HOW CAN A PROSPECTIVE MANAGER FIND AN AVAILABLE PLATFORM?
While a simple google search of “Singapore fund platform” should present some options, we are happy to make suggestions based on the Prospective Manager’s priorities and our clients’, experiences with different Platforms. We are familiar with larger Platforms as well as smaller, potentially nimbler, Platforms that operate as a RFMC.
HOW DOES A PROSPECTIVE MANAGER CHOOSE THE RIGHT PLATFORM?
We recommend that a Prospective Manager speak with other managers already on the Platform. We also suggest that the Prospective Manager consider the Platform’s reputation and economic strength. If a Platform is non-compliant or has a base capital breach, the Platform may be required to shut down adversely affecting all the managers the Platform supports.
CONCLUSION
While Holland & Marie offers excellent compliance and internal audit services to fund management companies, we take greater pride in giving our clients the best advice tailored to their priorities. If after
reading this article, you would like to learn more about Platforms, or are convinced you still want to apply for your own fund management company, please feel free to reach out. No matter what you decide, coffee is on us!
