Entry Barriers to Alternative Investment Funds
In a recent article for Hedgeweek, Talbot Capital director Kaine Price explains that affordable service providers are vital to the growth of smaller fund managers
For the first time in five years regulatory requirement has been knocked off the top of the list of the biggest challenges facing the alternative investments sector and this could restrict growth for smaller alternative investment funds.
Recently, the Alternative Investment Managers Association (AIMA) cited the requirement for an ever increasing amount of entry capital and high back office costs as the greatest barriers to growth.
The sector had seen a decline in the number of new alternative investment products entering the market. This has been due to the high entry capital requirement, which has doubled in the past five years to around EUR150 million, the implementation of AIFMD and the rising costs associated with providers of Depository and Administration services.
According to Kaine Price (pictured), Director of Talbot Capital, AIFMD should be embraced and he believes there will always be room for smaller alternative investment funds. He states: "The AIFMD regime provides investors with increased security and confidence and whilst only funds at a certain level have to comply all can elect to do so – this is attractive to potential clients. With the continued stagnation of traditional investment instruments the alternative investment fund sector offers an exciting opportunity for those looking to maximise capital return.
"The issue may actually be the lack of affordable service providers able to offer the full suite of support services,” says Price. “For many of the larger service providers there is a lack of interest in funds with AUM below a certain level and the charges they levy make access unaffordable to more discreet funds operating under the conventional two and 20 charging structure."
It is this lack of interest from the large service providers to support sub micro funds that Kaine is confident Talbot Capital can exploit: "Our independence allows us the freedom to provide clients with an unbiased, objective and professional range of middle and back office services, to which many of our larger competitors may never aspire,” he adds. “As a result we are able to offer a full spectrum incubation service to aspiring Fund Managers operating with a much more discreet level of Cap intro than the large service providers would entertain.
"We have already had a request to provide this service for both a fund that specialises in small cap AIM stock and another for a Wine fund with just 19 investors and a fund of GBP5 million which would be crippled by the costs associated with the larger providers."
Talbot Capital Ltd
36 Old Jewry
Tel: +44 (0)20 7397 3969