System Trading Blog

Make Your Money Work Harder

Archive for August 2011

Umbrella Fund Structures for Emerging Fund Managers

with one comment

A new fund manager is typically interested in to get his fund going in possibly short time and at the lowest cost.

Several fund administrators have set up umbrella structures to offer shorter launch times at a fraction of cost compared to the setup time and cost of a stand-alone fund structure.

Under the umbrella fund structure every new fund is registered as a sub-fund. Such umbrella fund is usually maintained by a fund administrator.

In Bermudas the launch time is 2 weeks and costs USD 5’000, in Malta – 3-4 weeks and EUR 10’000. Typically, the launch time is about 2-3 times faster and setup costs are 2-4 times lower.

In a hindsight, such sub-fund structure may be a viable solution if the management team is unable to pass regulator’s “fit and proper” test.

The ongoing annual costs are about the same or may even exceed the maintenace cost of stand-alone fund structure . The key disadvantage is that the fund manager is tied to one administrator as a service provider.

Some of the service providers offering umbrella fund structures to emerging fund managers are Apex Fund Services (in Bermudas and Malta) and Altarius Asset Management in Malta.

Advertisements

Written by A.S.

August 13, 2011 at 10:50 pm

The Best Domicile for Licenced Investment Fund

leave a comment »

The person has investment performance to show, recently left a very top level management position, have raised nearly $20 mio seed capital, has team,  wants to launch his own fund …

What domicile to choose? What fund structure? I´ll recount the process we just went through.

Funds are easy to incorporate and relatively easy to licence in the Carribean (BVI, Cayman, Bahamas etc.). Cost is reasonable, but marketing of such fund in EU is difficult and the domiciles in Carribean generally are not well perceived by our potential investor base.  The investors are mainly from EU, Eastern Europe and Far East. Some investors clearly prefer to have the money onshore rather than offshore. Basically, their key source of discomfort is that ¨it is difficult to bring money back from offshore¨ and they would rather accept 15% corporate tax and keep it onshore.

U.S. as a fund domicile is no-go area for the managers and potential investors alike. The key reason is managers´ and investors´ perception of U.S. as a country which has went a way too far with their version of policing financial transactions in post-9/11 period. Even small transfer amounts may be blocked with no apparrent reason and unblocked only upon presentation of additional documention justifying the transaction. Based on experience, the controls and regulation may be brute, probably effective, but definately not efficient, and overdone to the point of not being acceptable. So U.S. didn´t make it to the short-list as a fund domicile.

Selected EU countries or Switzerland were perceived as the best domicile due to marketing considerations and favourable perception by potential investors. UK, Ireland, Luxembourg, Switzerland are obvious choices, but the only setback with those seem to be high setup cost and even higher maintenance cost. Setup budget of €100k and annual maintenance cost of €200-300k was something to be expected. This is way too much for a small hedge fund startup with $20 mio seed capital.

We didn´t research in detail Dubai, Singapore and Hongkong options as we decided to focus on EU as the preferred area due to marketing implications. However, quick and dirty analysis showed substantial capitalization requirements as well as high setup and maintenance costs in the aforementioned domiciles.

Our final choice was Malta. It is in EU, Malta law is pretty much as copy of UK law (I hope I don´t hurt anybody´s sentiments here), English is official language in Malta. The fund industry in Malta seems to be properly regulated, while not overregulated. Reportedly, Malta Financial Services Authority (MFSA) is efficient and easy to deal with, if the fund directors meet the ¨fit and proper¨ criteria. At least, it is what we have learned from someone who has just launched a startup fund of similar size in Malta.

We´re planning a visit to Malta in mid-September to meet potential services providers. With telephone calls to Middle East and Switzerland for recommendations and with more telephone calls to Bermuda, UK and Malta we hope we have identified domicile and service providers who are a good fit for us. We expect setup costs to be in €20k area and annual maintenance cost in €30k area – this is a small fraction of what it would cost in UK, Ireland or Luxembourg, yet offers basically the same functionality in terms of structure quality in general and for marketing purposes in particular.

There are several fund setup structure options. In one of the subsequent blog posts I´ll recount our reasoning about which fund structure is the most appropriate for a startup hedge fund.

 

Written by A.S.

August 9, 2011 at 9:41 am

Boston Technologies Offers Your Own FX Brokerage for $48´000

leave a comment »

Foreign exchange is the world´s biggest market with nearly $ 4 billion daily turnover.  Almost anybody, subject to background check, can open his/her own FX brokerage for $50´000 or so.

Boston Technologies, as a technology partner, offers to get you up and running in 3 months for $ 48´000 upfront fee and $ 3´000 monthly maintenance fee (no charge for the first 3 months).

The technology is top-notch, uses MT4 and MT5 user terminals. In some jurisdictions, like Seychelles, there are no licencing or capitalization requirements for forex brokers.

Good offer, if you´ve got non-US clients.

Written by A.S.

August 4, 2011 at 9:54 am

Switzerland and [lack of] Banking Secrecy

When dealing with investments, banking secrecy is often an important issue even for the most amiable individuals. “I don’t want others to see millions booked in my name or to my name …” – a recent qoute from an individual with impecable reputation, and no doubt that he has made the millions legally …

Some time ago a choice of a Swiss bank was a safe bet that your money will be in safe distance from taxman or anybody else for that matter. Basically, almost everything went … I remember a meeting in a Swiss bank at the beginning of 90´s: ¨bribe money … we don´t call it like that, we consider it a consulting fee; tax evasion… hm, they have no issues with Swiss taxes, have they? … then it´s no problem!¨. It´s no surprise that money from all over the world flowed to Switzerland. Very few questions asked, legal system protects the client, banking traditions spanning hundreds of years … quite a reasonable choice.

Today Swiss banking system is not that secret anymore. Swiss bank is still much better than any EU bank, not speaking about US (which is hopeless due to paranoia about terrorist finance, even interbank payments for small amounts may be affected), but it has become substandard when it come to secrecy.

US and UK have de facto crashed the strict Swiss banking secrecy, tax collection was the issue. The action was quite brutal at times, US went as far as detaining a senior UBS banker as ¨a material witness¨while he was travelling through a US airport.

Whatever the reason, the Swiss system is not what it was. So far the law required to inform client, if a request for tax information is made by a foreign tax authority and the client had the rights to review such request as well as to review the data given to such foreign authority. In future, Swiss bank account owners could have accounts disclosed without their knowledge. Bearer savings books are being phased out, although Swiss companies are still allowed to issue bearer shares.

Switzerland has pledged to conform with standards as set by OECD (Organisation for Economic Co-operation and Development) and continues down this path slowly. It proceeds with exchange of information agreement, in Y2005 started to tax accounts owned by EU residents (as part of EU Savings Tax Directive), starts to respect foreign governments´ demands for information about unnamed individuals´ accounts in unspecified banks etc.

The bottom line is that we can not rely solely on Swiss banks, or banks in any other country, to provide complete and long-term confidentiality. I´m not talking about illicit funds like profits from drugs or weapons etc. I´m talking about a friendly environment for business without  skyhigh compliance costs and taxes, about tax planning so that no government can claim something what is not due to them, about keeping the funds out of reach of rogue competitors and angry spouses etc.

Fortunately, there are still plenty of opportunities for efficient tax planning and secrecy assurance. Usually, an additional layer of a company in a low-tax, properly regulated jurisdiction is needed. And, with such additional safety layer of a company in place, Swiss banking is still good enough.

Update 20120105: Link to article about US New Tactic http://www.huffingtonpost.com/2011/12/28/swiss-bank-tax-evasion-_n_1173477.html

 

Written by A.S.

August 2, 2011 at 9:36 am