Apex offers low-cost option for hedge fund start-ups

Apex Fund Services is providing start-up hedge fund managers with a range of options to keep costs down, including free office space in several major cities around the globe. It will also offer advice

Apex offers incubation for emerging hedge fund managers

Apex Fund Services has launched an incubation service for start-up hedge fund managers to try to stem the tide of failures among new managers.

The emerging manager incubation service (EMIS) division "is for the people who are not confident they can raise $50 million out of the gates and so to give them the best chance to start well and not spend too much money," explains Peter Hughes, group managing director at Apex.

The services are aimed at managers starting with assets under management (AUM) of less than $50 million. Funds with higher AUM at launch should find it easier to be self-sufficient, according to Hughes. Up to 75% of all launches fail, says Bill Wiggin, manager of Apex EMIS.

Wiggin, who joined Apex in March to head the division, will work part-time while also serving as a member of parliament in the UK. He has previously worked at Union Bank of Switzerland, Dresdner Kleinwort Benson and Commerzbank.

"New funds often carry too high a cost base at launch, which can be a major drag on the growth of the fund, restricting its chance of success. EMIS brings solutions to all of these potential hurdles and brings the key infrastructure needed to make funds investable," he says.

EMIS will provide advisory services on fund structure, jurisdiction selection, launch platforms, cloud hosting, broker networks and administration. It also offers low-cost order management systems and portfolio management systems.

Free office space for the first six months after launch will be available for managers initially at Apex's offices in New York, Miami, London, Malta, Mauritius and Sydney. Apex plans to have space available in all 20 countries in which it operates.

As hedge fund AUM grows, the managers will move to their own office while continuing to use Apex's services.

Starting a hedge fund has become much more challenging since 2008 as the investor base of the industry has shifted to institutions. Institutional investors, who now account for more than 60% of all AUM, expect funds to have significant operational infrastructure in place before making allocations to them.

The length of the due diligence process has also increased since the start of the financial crisis and can take anywhere between six to 12 months.

Another challenge for start-ups is the process of setting up and running a business. "These guys have been great at trading for their banks but in the banks they have their IT department, they have everything there and they just call and someone will fix it for them," says Hughes.

"When they go out on their own, how do they do all that? We are that department that you call. We provide the infrastructure so they can focus on managing money and raising money and not get swept up in the headache of which compliance service do they need, which OMS [order management system] do they need, which risk system do they need and traipsing around trying to find office space."

Another initiative, Apex Technologies, a wholly owned division of Apex Fund Services, was formed to offer fund managers a complete suite of technology solutions and third-party services including OMS and portfolio management services (PMS). Apex Technologies partners with leading organisations such as Linedata, Pacific Fund Systems, Statpro, Newedge, Knight, EFG Hermes and Global Prime Partners. Its OMS and PMS are fully integrated with the company's own fund launch platforms, fund administration servicing and middle-office functions.

Hughes says capital raising for hedge funds has become easier over the last couple of months. He has seen an increase in fund launches compared with 2012 and more seed capital available for emerging managers. "It's getting easier but it's still not easy. People have to search high and low for [AUM] but we are seeing our clients get subscriptions after a period where they haven't had a meaningful subscription in four years."

He adds that hedge funds trying to raise assets need to explore all areas of the world, not just the US and Europe. "There is a lot of money on the sidelines that is looking to get better returns," says Hughes, adding, "I think people are putting risk in their portfolios again."

He is seeing a difference in the strategies being launched compared with a few years ago. While equity long/short funds are still popular, there is much more variety. Investors are looking for uncorrelated returns and the result is that credit funds, hard asset funds and insurance-linked securities are popular.

Another initiative aimed at start-up managers is Emerging Asset Management, a company set up in 2008 by Hughes and John Bohan, managing director of Apex Fund Services (Ireland) and group operating officer. It offers a platform for start-ups in all the major hedge fund domiciles, providing legal services, fund administration and prime brokerage.

This low-cost start-up platform is available in any fund domicile, says Hughes. It offers managers a low-cost option, instead of spending on average around $100,000 to get a fund structure in place. The idea, says Hughes, is to give managers a structure to use at the beginning until they have built up AUM and a track record and can then leave the platform to stand on their own.

Apex is one of the largest independent fund service providers, with more than $23 billion under administration and 29 offices across 20 countries. Its local service model is underpinned by a cloud-based technology platform. As part of a wider initiative to increase transparency and access to investment portfolios, Apex provides real-time risk and profit and loss statements to smartphones and tablets and provides a cloud-based portfolio and OMS.

Apex offers a number of platforms including US, Bermuda, Cayman and Guernsey emerging manager for small or start-up funds, Luxembourg specialised investment fund (SIF), Ireland Ucits and qualified investor fund (QIF), Luxembourg Ucits, Bermuda sharia and the Malta professional investor fund (PIF).