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AIFM CHALLENGES: HOW ALCEDA PLATFORM IS BECOMING A EUROPEAN PASSPORT FOR AIF FUNDS?

Opalesque UCITS intelligence met Manuela Fr¶hlich, head of Global Fund Sales and Helmut Hohmann, Managing Director Sales, discussing how a provider such as Alceda can become a one shop solution for hedge fund managers wishing to enter the European distribution market. Michael Sanders, Chairman of the Board of Alceda Fund Management S.A will also give us his perspective on the evolution of UCITS.

Manuela, can you explain us what your platform is providing to fund Managers?

Alceda enables asset managers to structure their investment strategies in a UCITS format as well as in any other Luxembourg structuring solutions.

With our long-standing history as UCITS and Alternative Investment Platform we are providing flexible and reliable solutions to our clients, both asset managers and institutional investors, from straightforward to the most complex investment strategies.

The Alceda's approach is to provide an open architecture where fund managers can choose their preferred counter parties for custody, trading, etc.. This approach is particularly attractive for asset managers that do not have a presence yet in Europe and for whom, the regulatory barrier is high.

Historically, Alceda's platform was created to structure Investment strategies into a reasonable format - such as UCITS, SIFs or any other available Luxemburg product structure - for asset managers wishing to enter the German market. Each market in Europe has its own investment culture, its own preferences for fund structure, even if UCITS today remains a good solution for pan European distribution.

One of today's issues is to have the engine power to provide flexible solutions; we are not the only provider offering these types of services, however, we are independent, with a significant size and track record and a strong continental sales' presence since 2007. We grew rapidly and have the confidence of both investors and fund managers.

Many managers not only just want platform providers to structure their fund into a UCITS format in a timely and cost efficient manner, they also want the provider to help them with the distribution and marketing of the fund. Managers increasingly realise that distributing a UCITS fund is quite a different ball game to distributing an offshore fund and therefore seek platform providers who have the necessary distribution expertise, dedicated sales staff and far reaching network that ensures their fund launch is a success.

At Alceda we have a so called, Global Fund Sales" Team. This team is in charge of distributing a very focused number of funds on the platform. The team covers the whole range of investor types (Independent financial advisors, banks, family offices, institutional investors, etc.). The geographical focus of our distribution activities are the German speaking regions in Europa, the Nordics, Asia (as we opened an office in Hong Kong in April 2012), and LATAM (we partnered up with a dedicated LATAM distribution agent).

Alceda's dedicated fund sales team function aims to help managers optimise fund distribution and achieve their full sales potential. Alceda offers managers access to strong distribution networks, close partnerships and/or exclusive distribution arrangements. Upon the fulfilment of certain product criteria, such as a certain level of fund AUM, a three year live strategy track record and convincing performance, Alceda works in close cooperation with the manager to develop an in-depth distribution concept that includes the identification of potential clients and the planning of targeted marketing and distribution activities.

We offer our preferred partners an extensive sales and marketing service that includes the creation of marketing materials such as fact sheets, PR activities, inclusion of the fund on Alceda's website, as well as the provision of fund data to data providers.

Alceda organises numerous road shows and web-conferences that provide managers with the opportunity to present their funds to our broad distribution network. Managers also have the option to join Alceda at key industry events, where they can present their funds together with Alceda at our professionally presented exhibition stands.

Helmut, can you tell us a bit more on your offering in AIF funds? How do you see this market developing in Europe?

AIMFD promises to change the landscape for how firms attract and manage their assets.

The distribution capacity in Europe is evolving and changing to adapt to the new AIFM Directive. We see the directive as bringing positive changes. Investors in Europe will access to a larger range of investment strategies under a regulated format. The AIF funds will cover liquid strategies, potentially using higher leverage and more complex investment guidelines. Investors will be able to access these strategies. We see a number of illiquid strategies at the frontier with private equity, developing into a fund structure and offering access to long term investments. We foresee a real development in renewable energies and portfolios of real assets. These strategies are in higher demand for potential higher returns. If they are available in AIF funds, the regulated format will become rapidly very attractive to institutional investors.

Some asset managers do not have the legal and compliance resources to work on the registration of an AIF structure in Europe. Some are also sceptical on the real investment market in Europe. Those are our clients. We act as an external advisor and help them building the right fund structure to distribute in Europe. We are positive on the AIFM directive despite the general critics, market players like Alceda are opening new investment opportunities and creating a positive outlook for the future.

We believe, that in a mid- to longterm perspective, AIFMD compliant products will reach the same "Gold Standard" acceptance by global investors, as UCITS already has.

Why do investors choose UCITS rather than offshore hedge funds?

In our opinion the relative success of asset management companies raising assets into UCITS products is more a function of strong distribution channels and brand recognition, rather than a loss of competitive advantage by hedge funds. Offshore hedge funds have historically raised most of their assets from UHNW individuals, family offices, and FoHF. This led them to build distribution networks well suited to these investor types, where the number of targets is relatively low but the average ticket size is high. In contrast, asset management companies have extensive distribution networks targeting assets from the retail market right through to institutional investors, and thus have been well placed to exploit the demand from alternative UCITS products which has come from these channels. However, as risk appetite returns and investors become more adventurous we expect to see smaller and more nimble managers increasing their market share and challenging the bigger players to be more innovative in their offerings.

Who is investing in UCITS hedge funds?

UCITS is the investment vehicle of choice for many investors, as a way to gain easier, more liquid and more transparent exposure to alternative investment strategies. We expect to see continued demand for single manager alternative strategies in 2013, with many investors still focusing on increasing diversification in their portfolios. This growth will be supported by the ever increasing range of alternative strategies available to investors. Alternative asset managers are increasingly attracted to UCITS due to the greater distribution flexibility that it provides, and the resulting opportunity to significantly expand their investor base.

Even with AIFMD, there is still a growing demand for alternative UCITS structures outside of Europe, particularly in Asia and LATAM. We are encouraged by the prospects in the Alternative UCITS sector and believe alternative strategies in a UCITS format will continue to attract investors across the risk-spectrum in 2013 and beyond.

Will hedge funds benefit as European pensions diversify out of equities into other asset classes?

More pensions fund money will flow into hedge funds, which are still seen as good diversifiers. On the other side, also other options like private equity or Real Assets are proving attractive right now.

German Hedge Fund Market and further trends

German investors have painful experiences in hedge funds. They began to allocate between 2006 and 2007 and ended up with FoHFs in 2008. The negative impression of the hedge fund industry is due to the lack of liquidity, transparency and insufficient performance combined with disproportionately high fees. The hedge fund exposure was also reduced by the negative attitude to hedge fund-related investment activities in the press and the political environment.

The demand from German investors is however increasing due to the current low-yield and high-volatility environment as well as the ongoing political and economic uncertainties.

European regulation will somehow foster the development of hedge funds as the rules for insurance and pensions companies in Germany and Europe are tightening through Solvency II and other rules. Hedge funds offer superior risk-return profiles that might large investors animate to increase their allocation in alternatives.

With the AIFM hedge fund managers authorised under the directive will gain a passport to market EU-domiciled funds freely to professional and institutional investors in the 27 member states.

2013 may be a challenging year for hedge funds, although the fundamental attractions - low volatility, alpha and diversification - will continue to attract investors. Hedge Funds found it difficult to compete with the strong equity markets of 2012 and the strong bull markets of early 2013.

With more funds available than ever, investors have the task to choose from an expanding range of strategies and location choices to select funds to build a solid portfolio.

Michael Sanders, you are Chairman of the Board of AlcedaFund Management S.A; how do you see the future for UCITS?

Alceda has been participating and organizing numerous events and road shows in Asia and Australia in 2012 and early 2013. We see a huge interest in those regions and we are encouraged by the prospects in the Alternative UCITS sector and believe both, traditional and alternative strategies in a UCITS format will continue to attract investors across the risk-spectrum in 2013 and beyond. UCITS is the investment vehicle of choice for many investors globally, who are attracted by its regulated format as well as the transparency and liquidity that UCITS offers.

With the UCITS universe continuing to mature and the quality of managers increasing steadily, the future for UCITS alternative funds continues to look bright. UCITS is the investment vehicle of choice for many investors, as a way to gain easier, more liquid and more transparent exposure to alternative investment strategies. We expect to see continued demand for single manager alternative strategies in 2013, with many investors still focusing on increasing diversification in their portfolios. This growth will be supported by the ever increasing range of alternative strategies available to investors. Alternative asset managers are increasingly attracted to UCITS due to the greater distribution flexibility that it provides, and the resulting opportunity to significantly expand their investor base.

We are therefore very optimistic that the UCITS platform business will grow. Particularly mid sized manager from US and Asia are currently looking for UCITS structures. A lot of them have concerns to do the step to Europe on their own, because they do not know the market and distribution structure, as well as the regulatory framework. Our platform provides these type of managers a one stop shop service regarding their fund set up. And - as a difference to other platforms - we set up a separate fund umbrella structure for every single manager. This assures the manager, that he can use his own brand - and if the assets reaches a decent size in the future to transfer the fund structure to a stand alone solution.