Eurekahedge speaks to Steve Knabl about Swiss Asia, a hedge fund platform and incubator for start ups. As an Independent Asset Management firm with its base in Singapore and an office in Hong Kong, Swiss Asia currently manages US$1.5 billion split between wealth management and asset management platforms.
- Swiss Asia Holdings offers hedge fund platform services for start-up fund managers and possesses broad knowledge of the fund management space in Asia. Please share with us a bit of history about your business and the key milestones you have achieved so far.
- Can you tell us about the broad range of services on offer by SAFS with reference to your overall value proposition?
- Leading from the above, what sets your firm apart from the other service providers in your industry?
- Some of our readers may be unfamiliar with hedge fund platforms. Could you give them a brief run down on how such platforms work and the structure of a fund utilising your services? What is the process of launching a fund with Swiss Asia?
- In the past few years, smaller funds have trended towards outsourcing non-investment related services to third party providers. What does setting up a hedge fund via platform have to offer as compared to in-house administration? Out of the entire suite of services provided to your clients, which have proven to be the main draw for fund managers?
- The fund management universe covers a wide spectrum of different asset classes and strategies, types of investment vehicles and different jurisdictions. Which category of clients do you specialise in serving and what kind of customised solutions do you offer them?
- With reference to your capital introduction offerings, how does your firm propose to bring together investors and managers and what has the success rate been like thus far in terms of capital raising? Would you say that for the first couple of years, growth on a hedge fund platform is limited to performance-based gains by managers – or is there evidence to the contrary, i.e. strong asset allocations from investors?
- With rising breakeven costs for hedge fund startups, and a greater preference on part of investors to allocate to the larger funds, liquidation rates for the smaller players in the industry have been significantly higher. Can you share with us the average lifespan and liquidation rate of the funds on your platform? Do you feel hedge fund platforms such as your can increase the chances of fund survival given the lower costs?
- Hedge fund platforms promise to reduce the barriers to entry by reducing the regulatory, compliance and administration costs of running a hedge fund. Is there considerable scope for these cost savings to be transferred onto investors in the form of lower management/performance fees? Have you seen evidence of that in the case of funds operating on SAFS platform?
- On a final note, what advice would you give to new and potential hedge fund start-ups setting off with just a few million in assets?
Swiss Asia has always been in the fund management space, as we were running a large fund of hedge funds vehicle for a number of years. However the global financial crisis in 2008 did not help the cause for growing a fund of hedge fund product primarily due to liquidity provisions that were not in line with investors needs. During that period we realised that we had to evolve our business and we still had the infrastructure to operate a fund management business so we decided to extend our Fund Management Platform that was available to only a few select clients to build it out into the leading hedge fund platform in Asia.
A very important factor that has also helped us grow our portfolio of managers is the ever increasing cost of regulation, compliance and operations. For smaller fund managers to handle non-investment related business is not very cost effective.
Swiss Asia is an incubator for start up hedge fund managers. What this actually means is that our services range from the corporate setup, compliance to the entire spectrum of operations. Additionally we also provide the fund manager with office space, a dedicated compliance officer, COO, execution system and assistance with distribution via our networking events and our targeted capital introduction events. The philosophy is that we want the fund managers to focus on what they are good at, rather than taking care of business management aspects.
We also provide a platform for private bankers who are planning to go independent. These private bankers are usually senior and have extensive experience in managing money for their clients under managed account structures. The reason they join us is that they want to give their clients complete independence, and also variety. Joining us allows them to custodise their client’s assets with whichever bank the clients choose.
Swiss Asia has a rather dynamic approach compared to our competitors. The essence of our business is to be able to cater to professionals within the finance industry. What sets us apart is that we have different business lines that have synergies with each other. Our Wealth Management and Fund Management platform can go hand in hand. We also strive to tailor our services and the structures to the clients’ needs. We do not believe that one size fits all in our industry.
A hedge fund platform is meant to be a quasi plug and play option for start up fund managers. Essentially a hedge fund platform is supposed to make launching a fund seem rather seamless, and ensure that managers focus on managing money rather than business management aspects. A hedge fund platform generally provides operational support (back and middle office), takes care of compliance, office space, IT support, data warehousing, and cap intro. The general structure is that the hedge fund platform is the Investment Manager of the fund and the PM becomes an employee of the platform.
The process is rather straightforward when launching a fund on the Swiss Asia platform. We will first ensure that we understand the fund managers’ needs operationally. Also we are required to understand where the fund managers’ investors are from; so that we can make sure we get the structure correct. The average time it takes to launch a fund on the Swiss Asia platform is generally two to three months.
Via a platform the manager leverages off the experience of the platform and the network. Many start-up errors can be avoided. Furthermore, professional platforms offer straight through processing form trade to settlement to reporting via robust fully integrated systems. These systems are expensive and complicated to install. Basically, the start-up manager is able to access top-notch service quality for a fraction of the price if he were to do it alone.
Our systems allow us to serve all types of fund managers. Generally the fund managers tend to be long only absolute return, global macro, long/short equity space, arbitrage, etc. We are agnostic in terms of what type of fund manager we on-board.
We organise capital introduction events for investors that we know may have an appetite for specific strategies. The format for these events we will be conducting capital introduction days where a manager gets to present to a panel of investors. We also give permanent access to our private wealth managers that are always looking for new investment ideas. This can prove to be a valuable source of capital over time if the track record and pedigree of the manager are good.
We would not be able to give a realistic indication of the liquidation rates of funds on our platform, as this activity is relatively new and the majority of funds have less than one year track record. From history and experience, we have seen that funds may shut down shop after three to four years as they were not able to raise any significant capital or if performance was not adequate. Swiss Asia is definitely able to prolong the chance of survival for funds seeing as the overhead costs of running a fund are substantially lower on a Platform. Our model is built to offer the fund managers economies of scale and access to top notch service providers at very competitive rates.
We are of the opinion that there is no reason to lower the management fees and performance fees of a fund because the overhead operational costs are lower. This is especially true given that most start-up managers have very small AUM and in many cases actually subsidise the platform costs from their own pocket in order to cap the TER of the Fund at acceptable levels at the early stages of the fund. From experience we have seen very large managers taper down their management fees as the funds reach very large sizes, although this is not very frequent. The savings have a tendency of giving investors comfort because it enables the manager to prolong his chance survival and thus gives him more time to raise assets.
The advice we would offer to start up fund managers would be to carefully consider the correct structure when launching a fund and to ensure that they understand the costs of running a fund and the regulatory framework. To launch with US$5 million to US$15 million on your own you have a lot of overhead costs to deal with, whereas with a platform you pay a fee and you get everything sorted out and you learn along the process.New fund managers need to think about growing their business and making sure they minimise their costs in the initial stages. The key is to build a sustainable business, and focus on investment decisions. Let professionals manage the business side while you focus on the investment side, this gives you complete segregation of duties which investors prefer.