^ regulatory cover such that the manager does not need to obtain its own regulatory authorisation. The key advantage of these third-party platforms is that they reduce cost in the short term and allow the manager to maintain a small operation in its formative years. Further, the use of a platform allows the manager to build a track record that, if successful, may enable the manager to spin-off the platform and go it alone in the future (in which case, it is important that managers using such platforms seek appropriate rights over the track record at the outset). The downsides of launching on a platform include longer-term cost (with costs calculated on an AUM basis, platforms can be more expensive for larger funds), a lack of control (an investment manager is a service provider and so is unlikely to have any representation on the platform’s board), the investment manager may have limited (or no) choice in terms of service providers, and difficulties may arise if the investment manager wishes to move to its own platform or the platform itself goes out of business (for example, where moving the fund to another vehicle, there is a risk that an investment gain will be crystallised for tax purposes).
In summary, platforms can be a simpler and cheaper way of getting started and building track record, but over the long term, the economics and lack of control is often not viable or acceptable for some managers. Managed Accounts Increasingly, a desire to invest in hedge fund strategies on a capital-efficient basis by an increasingly sophisticated investor base has driven significant growth in the use of managed accounts as an alternative to investing in a fund. This model has enabled investors to increase the amount of capital they are able to put to work with multiple managers through the investment of capital in a number of strategies on a non- segregated basis, allowing for the netting off of margin and collateral required to be posted with trading counterparties. Such investors may seek or require, inter alia, greater control and transparency in relation to the management of their assets and have particular commercial requirements (e.g., as to strategy and leverage), which means it is either not possible or desirable for them to invest in a manager’s main fund vehicle. ^ whether laws and regulatory requirements governing the fund and service providers, investment and borrowing powers and restrictions, custody arrangements, confidentiality laws, banking-secrecy laws, foreign exchange limitations, etc., might make one jurisdiction more desirable in a particular case than another; ^ the nature and extent of anti-money laundering measures in any particular jurisdiction, which will go to its reputation and credibility; ^ whether the manager has pre-existing relationships in the jurisdiction – for example with service providers or directors; ^ whether the manager intends to build any management company substance in or near that jurisdiction and would therefore benefit from co-locating the manager and fund;
Jurisdiction; Where Should the Fund be Domiciled? Overview
There is considerable competition between leading jurisdictions. Popular jurisdictions include, amongst others, the Cayman Islands, Ireland, Luxembourg and the U.S. (commonly Delaware when targeting U.S. investors). In choosing a fund domicile, issues for consideration include the following: ^ the tax efficiency of establishing the fund in a jurisdiction, including how it will be regarded by tax authorities in investor jurisdictions; ^ the familiarity of the jurisdiction to the target investor base; ^ whether the jurisdiction will enhance or
restrict the fund’s ability to be marketed into certain jurisdictions or to certain target investor types;
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