FEATURING Dechert // Dillon Eustace // KB Associates // One Ten Associates // Point Nine // Quant // Zammit & Associates Advocates LEGAL ISSUES Advice for start-ups in the EU RECRUITMENT Making the right hires at the right time CONSULTANCY Maintaining investor confidence HOW TO START A HEDGE FUND IN THE EU 2012 WEEK HFM SPECIAL REPORT DISTRIBUTED WITH HFMWEEK $/7(51$7,9(,19(670(17)81'6 -XULVGLFWLRQQHXWUDO 'HFKHUWKDVWKHRQO\PDMRULQWHUQDWLRQDO IXQGVSUDFWLFHHVWDEOLVKHGLQDOORIWKH(8·V OHDGLQJIXQGFHQWUHV³'XEOLQ)UDQNIXUW /RQGRQ/X[HPERXUJ0XQLFKDQG3DULV ³DVZHOODVHOVHZKHUHWKURXJKRXW (XURSHWKH8QLWHG6WDWHVDQG$VLD GHFKHUWFRP $XVWLQ%HLMLQJ%RVWRQ%UXVVHOV&KDUORWWH'XEOLQ)UDQNIXUW+DUWIRUG+RQJ.RQJ/RQGRQ/RV$QJHOHV/X[HPERXUJ 0RVFRZ0XQLFK1HZ<RUN2UDQJH&RXQW\3DULV3KLODGHOSKLD3ULQFHWRQ6DQ)UDQFLVFR6LOLFRQ9DOOH\:DVKLQJWRQ'& ´7RSSLQJWKH6XSHU/HDJXHLV'HFKHUW7KH EUHDGWKRILWVUHFRPPHQGDWLRQVDFURVVWKH NH\PDUNHWVRIWKH86(XURSHDQG$VLD FHPHQWVLWVSRVLWLRQDWWKHWRSµ 3/&,QYHVWPHQW)XQGV6XSHU/HDJXH 2QHRIWKUHHILUPVLQEDQGIRULQYHVWPHQW IXQGVKHGJHIXQGV´'HFKHUWKDVRQHRIWKH PRVWKLJKO\UHJDUGHGKHGJHIXQGSUDFWLFHVLQ WKHZRUOGµ &KDPEHUV*OREDO ´5HFRPPHQGHGIRULQYHVWPHQWIXQGVDQG DVVHWPDQDJHPHQW'HFKHUW·VSUDFWLFHLVHYHQ PRUHHVWDEOLVKHGZLWKODVW\HDU·VQHZKLUHV DQGLVNQRZQIRULWVLQQRYDWLYHZRUNµ -89( 'HFKHUWKDVKHGJHIXQGZRUN´GRZQWRD ILQHDUWµ &KDPEHUV8. )RUPRUHLQIRUPDWLRQSOHDVHFRQWDFW *XV%ODFN/RQGRQ  JXVEODFN#GHFKHUWFRP 'HFODQ2·6XOOLYDQ'XEOLQ  GHFODQRVXOOLYDQ#GHFKHUWFRP $FKLP3W])UDQNIXUW  DFKLPSXHW]#GHFKHUWFRP 0DUF6HLPHW]/X[HPERXUJ  PDUFVHLPHW]#GHFKHUWFRP HFMWEEK.COM 3 REPORT EDITOR Richard Weston T: +44 (0)20 7029 4025 r.weston@pageantmedia.com STAFF WRITER Roberto Barros T: +44 (0)20 7029 4069 r.barros@pageantmedia.com HFMWEEK EDITOR Tony Griffiths T: +44 (0)20 7029 4058 t.griffiths@hfmweek.com PRODUCTION EDITOR Claudia Honerjager SUB-EDITORS Rachel Kurzfield, Eleanor Stanley DESIGNER Matt McLean MANAGING DIRECTOR Charlie Kerr COMMERCIAL MANAGER Lucy Guest T: +44 (0)20 7029 4052 l.guest@hfmweek.com PUBLISHING ACCOUNT MANAGER Sarah Halton T: +44 (0)20 7029 4036 s.halton@hfmweek.com SUBSCRIPTIONS MANAGER Richard Freckleton T: +44 (0)20 7029 4017 r.freckleton@hfmweek.com CIRCULATION MANAGER Fay Muddle T: +44 (0)20 7029 4084 f.muddle@pageantmedia.com HFMWeek is published weekly by Pageant Media Ltd ISSN 1748-5894 Printed by The Manson Group © 2012 all rights reserved. No part of this publication may be reproduced or used without the prior permission from the publisher Published by Pageant Media Ltd LONDON Suite L, 1 East Poultry Avenue EC1A 9PT T+44 (0)20 7029 4000 NEW YORK 240 West 37th Street, Suite 302, NY 10018 T+1 (212) 268 4919 HFM HEDGEFUNDMANAGER WEEK ith just over 15 months to go until the Alternative Investment Fund Managers Directive (AIFMD) is due to be written into national laws, 22 July 2013, hedge fund start-ups are coming to terms with the implications. Intended to offer more stability and enforce greater transparency to funds’ operations across the European Community, the Directive’s stipulations may require more time and financial resources in order to comply with it, but the resulting opportunities for fund managers may make it worthwhile if demand from investors increases. This HFMWeek special report explores the key issues facing European start- ups and what potential investors will be looking for. Setting up a hedge fund infrastructure demands a good understanding of both the needs of the business and those of the investors, and there are many different considerations to address early on. The COO and compliance department will naturally have an important role in making sure regulatory approval is obtained. Fund managers will have to establish a viable business, showing the necessary controls and risk mitigation in their infrastructure at the same time. As transparency and security become key requirements, structural solutions such as managed account platforms (MAPs) will be appealing to investors, and in addition, prime brokerage services will be looking to assist those start-ups unable to afford the costs required to attract the attention of the larger European prime brokers. Ireland continues to be an attractive domicile, in particular due to its Qualifying Investor Funds (QIFs), which already meet many of the requirements of the AIFMD. Malta is coping with the increasing number of international businesses setting up operations there with the Highly Qualified Persons Rules, introduced by the Malta Government in 2011, which offer a favourable tax rate on employment income. Therefore, choosing the jurisdiction which best suits a fund manager’s needs remains as important as ever. Obtaining eligibility for Ucits space will also be attractive to investors enticed by the prospect of open passporting rights within the eurozone. Moreover, apart from meeting all the operational and due diligence requirements, the ability to offer potential investors a unique opportunity one way or another is just as important. Richard Weston REPORT EDITOR W HOW TO START A HEDGE FUND IN THE EU 2012 4 HFMWEEK.COM CONTENTS HOW TO START A HEDGE FUND IN THE EU 2012 LEGAL GERMANY: TRANSPARENT INVESTMENTS Achim Pütz of Dechert gives an overview of the benefits of a managed account platform from the perspective of a German institutional investor PRIME BROKERAGE HEDGE FUND IN A BOX, EVERYTHING YOU NEED IN ONE PLACE… Jerry Lees of Quant explains the important role of a Mini Prime broker: to get you to market quickly, bypass set-up and regulatory delays and raise funds LEGAL ATTRACTING THE ‘BEST OF BREED’ FOR MALTA’S FINANCIAL SERVICES INDUSTRY Andrew Zammit, chief legal officer of CSB Group, gives an outline of the Highly Qualified Persons Rules, 2011 RECRUITMENT START-UP HEDGE FUNDS Mush Ali of One Ten Associates explains the different challenges facing COOs of hedge fund start-ups OPERATIONS FLEXIBLE SOLUTIONS Ambasuthan Jananayagam of Point Nine talks to HFMWeek about why start-up managers need to be flexible during uncertain times CONSULTANCY HOW TO MEET INVESTORS’ EXPECTATIONS? Phillip Chapple of KB Associates discusses some of the demands of starting a hedge fund infrastructure LEGAL QUALIFYING INVESTOR FUNDS – THE REGULATED ALTERNATIVE Derbhil O’Riordan of Dillon Eustace explains Ireland’s benefits as a regulated jurisdiction for alternative fund investors and fund managers 06 08 11 14 17 19 21 [...]... the investors a risk exposure they are interested in You need to have those unique selling points that investors can see and that make them want to buy that risk THE MAIN THING IS TO START WITH AN INTERESTING ALPHA PROPOSITION ” HFM: How can start- ups attract an investor’s interest? PC: The main thing is to start with an interesting alpha proposition and this is the toughest part for a start- up Even... retracted from the start- up space into the bigger safer options But then investors came back looking for more interesting and smaller funds, looking for an access to higher alpha opportunities HFM: What are the main challenges when starting a hedge fund? PC: Managers have to find the right balance between building a viable business and demonstrating the requisite controls and risk mitigation in their infrastructure... part-time rather than full-time, to cope with increasing demands in this area THE CHALLENGE FOR START- UP HEDGE FUNDS IS THE ABSOLUTE NEED TO BRING QUALITY NONINVESTMENT TALENT Q: Does it make sense to bring in a marketing/sales person at the beginning? A: We find the reality is that the first 12 months of a startup is about getting the performance and operational infrastructure to work The marketing/sales... businesses establishing some or all of their operations in Malta, particularly in the regulated industries of financial services and internet gaming, has created a marked shortage in the supply of certain specialised skills within these industries These growing pains have been managed by the Maltese government through various initiatives including the incentivising of advancement into tertiary education and... of raising assets When those mandates are widening, in effect more managers should fit into the mandate requirements so there are more strategies that can attract investment We also see an appetite from many investors to source early stage managers due to the higher alpha available in the early stages of a fund It is possible to get started now, as long as you have a defined alpha proposition that meets... FUND MANAGERS A Derbhil O’Riordan joined Dillon Eustace in 2003 and became a partner in 2010 She advises primarily in the area of investment funds and has particular expertise in exchange traded funds, hedge funds, sophisticated Ucits and has also advised in relation to the listing rules of the Irish Stock Exchange s investors are seeking more security, transparency and regulation, and as fund managers... think the current trend of increasing due diligence is going to ease up As the investor base for hedge funds becomes more institutional in nature, due diligence has become key in allowing investors to gain comfort over which risks he is taking A positive for start- ups is that we are seeing investors widen their investment mandates Managers have to be exactly in the investors’ mandate to have any chance... driving seat and so providing them with transparency and meeting their due diligence criteria are critical to growth THE FUND MANAGEMENT INDUSTRY IS CLEARLY MATURING HOWEVER, THE FUNDAMENTALS OF A FUND MANAGEMENT FIRM REMAIN FAIRLY OBVIOUS DUE DILIGENCE REMAINS STRINGENT For its part, the investor community has maintained the stringent due diligence demands introduced during the crisis Taking into account... if they are viable We only really want to engage with people if we think they have a viable opportunity that we can actually add value to by helping HFM: What are the key requirements from investors that constitute a challenge for a start- up? And how can a start- up overcome these hurdles? PC: One of the main challenges for a start- up manager is a lack of transparency Although the investors’ standards... headwinds Middle and back office solutions, whilst less interesting than contemplating the changing global dynamics, is impacted by it and more importantly, the decisions that fund managers make in this critical aspect of a fund s infrastructure will determine their ability to navigate these austere times DEMANDING INVESTORS Investors have already reacted to the shifting balance of power Many fund managers . What is the key point a manager should always have in mind when starting a hedge fund? PC: e manager always has to think in terms of how the investor. just as important. Richard Weston REPORT EDITOR W HOW TO START A HEDGE FUND IN THE EU 2012 4 HFMWEEK.COM CONTENTS HOW TO START A HEDGE FUND IN THE EU 2012 LEGAL GERMANY: