In order to tap into fresh sources of capital, non-U.S. fund managers are looking to the U.S. to distribute investment strategies. This raises many issues: choosing the right vehicles for the job, regulatory considerations, and more.
The largest and most familiar U.S. market is the registered mutual fund. Other vehicles include bank maintained funds and unregistered vehicles such as group trusts, LP/LLCs, and Statutory Business Trusts. How does an adviser decide the best vehicle to meet the objective of growing assets while maintaining a budget?
A European adviser looking to distribute its strategy on a broad basis with the most flexibility would likely consider a U.S. Registered Mutual Fund. Highly regulated and governed by independent bodies, these vehicles offer multiple series and multiple share classes and can target specific investor groups while managing one portfolio. However, launching registered mutual fund products is expensive and substantial assets may be required to price the fund competitively and profitably.
A less expensive solution is the Series Trust or Umbrella Trust. Series Trusts are maintained by many service providers and offer an existing regulatory framework under which an adviser may launch its individual fund (series).
If the adviser's business plan is more targeted, a Collective Fund may be a good choice. These funds operate similarly to mutual funds but are exempt from SEC registration and carry lower cost structures. Collective Funds are sponsored by banks with the governance structure needed to oversee the investment firm as the sub-advisor. There is increasing acceptance of this vehicle within its eligible investor base and it is a viable option.
Another option is unregistered vehicles. Group Trusts, LPs and Business Statutory Trusts are exempt from registration with the SEC, are valued less frequently than daily and can carry lower cost structures.
Penetrating the U.S. market is a challenge for non-U.S. asset managers who face new regulatory mandates and distribution challenges. Investment managers are teaming with strategic partners who can support a large middle and back office operation and have jurisdictional expertise to monitor ongoing regulatory developments and maintain operational processes.
Outsourced platforms offered by an experienced service provider can address many of the issues associated with new fund distribution. In addition to easing the administrative burden, these platforms allow the investment manager to leverage the provider's existing governance and risk-management infrastructure.
Barbara Nelligan is a senior vice president and product manager at Northern Trust. Ryan Dargis is a vice president and product manager at Northern Trust.
To view the complete version of this Industry Commentary, visit the Mutual Fund Service Guide website at mmexecutive.com/mutual-fund-guide. Click on the Fund Accounting section.