Fund Market Set to Grow with Direct Lending Vehicle

Extracts from an article By James Williams appearing in HedgeWeek

With total hedge fund AuM now nearing USD3trn, the last 12 months have been a noticeable period of growth for the industry at large. Admittedly, 2014’s performance figures aren’t as strong as 2013 but as the regulatory dust in Europe settles many more managers are striking out and launching new funds.

John Bohan is Managing Director of Apex Fund Services in Ireland. A few years ago, Ireland saw a lot of US vulture capital funds moving in to snap up distressed assets when its real estate sector imploded. With the economy back on track and commercial property prices rising, these have been replaced by more mainstream PERE managers.

“There’s been a lot of land re-zoned for commercial and retail purposes in the last Irish budget so it’s an asset class that has once again become very attractive, especially given the growth rates we’ve seen over the last 12 months. The QIAIF regime has opened up the door. There are a lot more US managers beginning to look at it who aren’t seeing quite the same level of hurdles as previously. The conformity isn’t as complex as managers originally thought.

“For example, we are seeing managers with funds of USD50-100m in AuM beginning to consider the external AIFM solution to take advantage of the third country passport when it comes into effect next July. The opportunity costs are not as great as once feared,” says Bohan.

Whereas once the typical hedge fund manager ran a Cayman fund and nothing else, today’s reality is one that dictates a need to run multiple fund structures in order to cater for different investors. UK and Scandinavian institutions have no problem investing in offshore vehicles. What AIFMD has done – and which ESMA hopes will develop the same kudos as the UCITS brand – is open up alternative funds to Europe’s more conservative institutional investors in Germany, France, Italy and so on.

This is good news, both for non-European managers who are still in asset raising mode, and investors who want continued access to top talent.

Bohan is unequivocal in his response: “It’s definitely a big opportunity for Apex Fund Services. We have offices in 34 different locations and we see lots of different strategies launch. Now that managers have the ability to establish a loan fund using an Irish regulated structure it certainly opens that door for us.”

Bohan says that Apex Fund Services has made sure that it is positioned to provide a one-stop solution to its clients, noting that the firm has strengthened the alignments it has with the depositary banks (which are required to perform the asset safekeeping function for financial assets).

“We can provide full depositary services, all the regulatory compliance reporting, an AIFM wrapper (not necessarily with us). We have mapped out every aspect and integrated the costs into one complete package. One-stop doesn’t necessarily mean all services have to be provided internally. We still maintain that having an independent fund administrator from the custodian is a much stronger arrangement than having it all under one roof,” concludes Bohan.

Once direct lending gathers impetus, Ireland will see an increase in the number of regulated fund structures. Like Northern Trust, Ireland’s administrators and custodians are going to need to keep strengthening their teams, which in turn should create more jobs and deepen Ireland’s standing as Europe’s leading alternative funds centre.