Tokyo Fund Services IN FOCUS 2020
REGULATION New rules to simplify a Tokyo set-up
FUND LAUNCHES New hedge funds despite pandemic slowdown
Featuring Appleby | Gordian Capital | SS&C Eze | Teneo Partners
TECHNOLOGY Changing client needs as alternatives demand rises
JAPAN’S LEADING INSTITUTIONAL FUND MANAGEMENT PLATFORM Your regulated infrastructure partner in Japan FUND PLATFORM For managers outside Japan seeking to establish a Tokyo base of operations A regulated, physical, and fund management infrastructure for housing key investment professionals on the ground
COST EFFECTIVE
PENSION FUND DIM For managers outside Japan seeking a fiduciary manager to access the Japanese pension market A fully licensed discretionary investment manager positioned to connect offshore funds to pension funds in Japan
Significantly reduces setup time, cost, and uncertainties of establishing a regulated Tokyo base
INDEPENDENT
Not beholden to any firm or fund distribution relationship in contrast to other DIM firms.
LICENSED WITH FSA AND SEC
Discretionary investment manager for funds and separately managed accounts
NO CONFLICT OF INTEREST ROBUST IT SYSTEM FUND STRUCTURING & OPERATIONS SPECIALIST INSTITUTIONAL SCALE AND FOCUS RELATIONSHIPS & NETWORK
No proprietary or third-party capital managed, fiduciary focused Secure access to data and applications from anywhere with Internet access with full compliance and audit trail Specializing in the provision of innovative fund platform solutions to GPs. Not part of a larger financial group and not an add-on business Part of Gordian Capital group with AUM US$5.3bn across its fund management platform Experienced management team with established relationships
Visit Gordian Capital Japan Limited at http://gordian-capital.co.jp or contact us at info@gordian-capital.co.jp
CONTENTS
06 INSIDE THIS ISSUE… 04 LEVELLING UP – ENHANCING TOKYO’S PROPOSITION
By A. Paris
06 JAPAN RIPE FOR INSTITUTIONAL ASSET RAISING
Interview with Alvaro Tamura, Gordian Capital
08 STRUCTURING YOUR BUSINESS FOR EFFECTIVE CAPITAL RAISING IN JAPAN
By Stanley Howard, Teneo Partners
11 PARTNER SELECTION CRUCIAL AS ALTERNATIVES MANAGERS HOPE TO BENEFIT FROM GROWTH
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Interview with Edward Bee, SS&C Eze
14 THE UNIT TRUST AS AN OPTION FOR JAPANESE MANAGERS
Interview with Christian Victory, Appleby
16 DIRECTORY
Published by: Global Fund Media, 8 St James’s Square, London SW1Y 4JU, UK
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TOKYO FUND SERVICES IN FOCUS | Dec 2020
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OV E RV I E W
Levelling up – enhancing Tokyo’s proposition By A. Paris
A
stable, clean country, with a sensible government – Japan is well set for building out its fund industry. Proposals are being made to overcome barriers like high tax levels and legal restrictions, promising lower income and inheritance tax rates. And although the timeline of these changes is yet unknown, the plans bode well for the growth of the industry. One hurdle expected to change sooner rather than later is related to the language barrier. The recent launch of the initiative called Promoting the Use of English and Establishing a Single Point of Contact for Foreign Asset Management Firms will be a key development for global managers looking to set up a business in Japan. In early November, the new prime minister Yoshihide Suga gave his first policy speech to the Diet, the national legislature of Japan. He said: “Strengthening Japan’s functions as a global financial centre will help to make global financial markets more resilient against crises such as natural disasters through geographical diversification of financial centres. Also, that will help create new employment and business opportunities as well as economic growth in Japan. 4
The entry of foreign asset management firms into Japanese markets is important for that purpose.” According to Shinichiro Shiraki, CEO, Japan, AIMA: “Japan can attract many more managers, but we know Tokyo is less attractive than Singapore and Hong Kong because of higher tax rates, the language barrier and other unique restrictions in the legal guidelines. “Industry associations like AIMA and private equity fund association and venture capital association are bringing the industry voice to the government and regulators on these issues and advocating for a faster pace of change in this regard.” Encouraging the use of English will bring about considerable change in Japan. Many investment management professionals have lamented the complexity of the registration, legal entry and setup process. Having legal documents published in English will help ease this difficulty. Hedge fund prospects The hedge fund industry in Japan has been somewhat dormant of late. The Tokyo Metropolitan Government TOKYO FUND SERVICES IN FOCUS | Dec 2020
OV E RV I E W (TMG) launched Emerging Manager Program (EMP) in 2017 to stimulate growth in the sector, however it has not yet achieved the hoped-for success. The programme was designed to ignite a new hedge fund scene in Tokyo by relieving some of the cost pressures managers face when launching their funds, providing greater flexibility in licensing and easier access to real estate. Through this initiative, the TMG also aimed to provide institutional investors with an incentive to let emerging managers, who possess a license and do business in Tokyo, handle their funds. Shiraki outlines the main reason why the uptake has been slow: “None of the large institutional investors in Japan have seeded these emerging managers yet. Once this seed capital starts to come through, then we are likely to see more emerging managers being set up as a result.” Meanwhile, the TMG has continued to add firms to the list of official qualified outsourcing service providers within the programme. Enfusion is one of the more recent selections. Thomas Kim, Enfusion CEO, commented: “We are thrilled to continue to expand our global footprint and client base by working closely with the Tokyo Metropolitan Government Emerging Manager Program. It’s an honour to be recognised as a key partner and to play a leading role in a strategy that encourages the revitalisation and continued growth of Japan’s hedge fund industry. We look forward to building momentum in the region with leading asset managers and hedge funds.” Enfusion joins SS&C Eze, Sumitomo Mitsui Trust Bank, Nomura Research Institute, XNET Corporation, Mitsubishi UFJ Trust and Banking Corporation, State Street Trust & Banking Co, Broadridge Managed Solutions and Tora Trading Services. The Consortium for Japan International Asset Management Center Promotion (JIAM) released a white paper on the state of play in the Tokyo financial industry. The document collated data and opinions gathered by various means over the course of the last three years. This reported listed what the JIAM considers to be impediments to the promotion and support for emerging managers. The first is the difficulty in obtaining comprehensive and accurate information about the process of setting up an asset management firm in Japan. This can be eased once the aforementioned regulation around the use of English and the single point of contact comes into force. Another hurdle is winning mandates from institutional investors in Japan. Shiraki expands on this and the prospects for hedge fund managers: “Japan is an investors’ market. It is not a service provider or managers’ market. Therefore, the needs and appetites of the institutional are critical in driving growth in the industry. “There are large institutions like the GPIF and PFA which have invested but not on a regular or systematic bases TOKYO FUND SERVICES IN FOCUS | Dec 2020
None of the large institutional investors in Japan have seeded these emerging managers yet. Once this seed capital starts to come through, then we are likely to see more emerging managers being set up as a result. Shinichiro Shiraki, AIMA into hedge funds yet. These are the organisations which have large pots of capital and are looking for opportunity to invest in these types of assets, given the zero interest rate here in Japan. Investors such as these have to generate a return so hedge fund strategies will hold considerable appeal.” The JIAM report confirms the Tokyo EMP is an attempt to provide incentives to asset owners and gatekeepers to encourage allocation of funds to emerging managers. “However, the current programme is not sufficiently known by players in the market and there are comments suggesting that the incentive and flexibility of the programme in its current form are not attractive enough. There is room for better publicity and for improving the mechanics of the programme,” the report notes. Michael Bugel, Managing Director, Co-Head of APAC, AIMA concludes: “We need to help these smaller, mid-sized hedge funds. There is no shortage of launches – we’re getting on average between five and 15 new launches but we know there are several Japanese hedge funds based in Hong Kong and Singapore, run by Japanese professionals who would most likely be thrilled at the prospect of moving back to Tokyo if it made sense for them financially. Tokyo needs to make sure it is ready to receive any new applications.” n 5
G O R D I A N C A P I TA L
Japan ripe for institutional asset raising Interview with Alvaro Tamura What are some of the recent developments in the asset management business in Tokyo and what is the outlook? The Covid-19 pandemic has slowed activities in 2020 but it is likely that some of the asset management trends that began around 2017 remain in place given the underlying factors driving those trends. One exciting trend has been the steady number of Japan-based hedge funds being launched by managers with pedigree, track records, and assets to sustain them during the startup phase of their funds. The new Japan-based funds have strategies covering equity long/short, activism, global macro, preIPO, venture capital and real estate, among others. The establishment of a trading base in Tokyo by large platforms has helped train a new generation of traders. There is now a critical mass of risk-taking activity taking place in Tokyo away from the traditional sell-side trading. More importantly, the new breed of traders appears to value the home-field advantage and the quality of life that Tokyo provides. The personal tax benefits of launching a fund in a more tax-friendly jurisdiction is not necessarily the determinant factor of where to launch a fund. Another trend has been the establishment of offices by large offshore asset managers for investor servicing, deal origination, and fund raising. The ecosystem to support the new level of activity continues to grow with new service providers opening offices in Tokyo. Contrary to this rose-coloured view of the industry, an immutable fact has been the lengthy process for obtaining an investment-manager license. The requirement 6
to be fully staffed at the time of application for the license translates into high setup and carrying costs. That said, specialised firms, such as Gordian Capital Japan, part of the Gordian Capital group with USD5.3 billion AUM across its fund platform, offer fund platform solutions to GPs and managers, that significantly reduces time, cost and uncertainties of establishing a regulated base to house key investment professionals on the ground. Importantly, Gordian Capital Japan does not manage either proprietary or third-party capital, thus eliminating a clear potential conflict of interest. What are the main opportunities and challenges for managers based outside of Japan when raising funds from Japanese institutional investors, in particular in relation to pension funds? For managers seeking to raise assets from Japanese institutional investors, the opportunities are enormous. For example, the size of the pension fund market alone, is approximately 338 trillion yen (USD3.11 trillion), of that, public pension funds including GPIF are 226 trillion yen (USD2.08 trillion) and corporate pension funds are 112 trillion yen (USD1.03 trillion). Of the latter, the market size for defined benefit pensions is 78 trillion yen (USD718 billion). The pension fund managers are dealing with not only the impact of low interest rates but with a rapidly aging population seeking to retire and a dearth of onshore investment opportunities. More specifically, for over 70 per cent of the defined benefit pension funds, the target returns sought by the pension funds are in the range of 2.5 to 3 per cent while 10-yr government bonds yield around zero. As a result, the need for incremental additional TOKYO FUND SERVICES IN FOCUS | Dec 2020
G O R D I A N C A P I TA L yield is very high but it is estimated that only 13.7 per cent of the defined benefit pension fund assets are in non-traditional investments. Although hedge funds were the initial targets for diversification, pension fund managers have begun to expand their investments to a wide range of investment strategies including private equity, infrastructure, direct lending and special situations among others. Against this backdrop, managers from outside Japan naturally will conclude that by attracting just a very small slice of this demand, they would be able to not only add to the assets they manage but diversify their investor base. However, the challenge of raising assets from Japanese institutional investors, as is well known, requires great effort, determination and perseverance. Beyond the distance and language barriers, the extent of the undertaking cannot be underestimated. The hurdles that await an offshore manager seeking to raise assets from pension funds, for example, may offer some light as to the challenges. The pension fund’s decision-making process is multi-layered and, as a result, extremely time consuming. Many pension fund managers hire consultants, which help them vet their alternative investments. The pension fund managers, who are not necessarily incentivised to maximise returns, are, in fact, extremely risk averse. Often, they do not have the necessary expertise and, as a result, they rely on consultants to offload professional risks. The result is a system that has given consultants inordinate gate-keeping power. Having consultants give the green light to the offshore managers has become one of the first big hurdles managers must clear. In Japan, the defined benefit pension funds, unless registered with FSA as a qualified institutional investor, must make use of regulated fiduciary managers insurance companies, trust banks and discretionary investment management (also known as DIM) firms. As of March 2020, there were 131 fiduciary managers with pension fund mandates. Finding a firm with the necessary language skills, the ability to work with and between both domestic pension funds and offshore mangers and the expertise to be the fiduciary manager is much harder than the number of existing fiduciary managers would imply. Most of the DIM firms are obviously
focused on their inhouse products. Some of the large ones have separate business units handling third-party products but many of them have long-established relationships with competing products thereby creating a shelfspace problem for new offshore managers seeking to enter the market. The problem is compounded when the fiduciary manager has signed exclusive distribution agreements with particular offshore managers thereby further limiting access to pension funds. The trend now is for some of the larger offshore managers to establish their own offices as part of a long-term strategy to cater to Japanese investors. For those interested to test the water initially or for those whose budgets preclude them from establishing a fully-fledged base in Tokyo, there is an option to work with independent fiduciary managers, such as Gordian Capital Japan, which offer the necessary language skills, a culturally blended team, flexibility, expertise and established relationships. n
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Alvaro Tamura Managing Director & CEO, Gordian Capital Japan Limited In a career spanning over 21 years at Morgan Stanley in NY and Tokyo, Alvaro was a founding member of the Japan interest-rate derivatives desk covering global macro funds, the Japan Global High Yield trading desk and the Japan Special Situations Group, which focused on proprietary investments in special situations, private equity and real estate. Prior to joining Gordian Capital Japan, he worked on fund advisory and due diligence at a boutique asset management firm. Alvaro earned a BSE in Electrical Engineering and Computer Science from Princeton University and an MBA from The University of Chicago.
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T E N E O PA R T N E R S
Structuring your business for effective capital raising in Japan By Stanley Howard
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ffective capital raising is generally a key, if not the primary objective of global fund managers when considering whether to establish a presence in Japan. Despite the Covid-19 induced acceleration of conducting business within virtual meeting environments, the positive impact of having a physical presence in Japan should not be minimised. More than in other countries and regions, the importance of personal communication and relationship building in the Japanese culture is vital to sustained success. But how asset managers manage to achieve that objective in a cost-efficient way is a critical issue. There are two principal approaches to raising capital in Japan. The first is the securities distribution approach whereby funds are placed directly with investors by distributors. The second is the asset management approach whereby a manager offers funds based on a contractual investment management mandate with an investor. The approach that an asset manager takes in respect to capital raising will depend on their strategy, which will in turn determine the licenses that are required, and the structure used for the business. Securities distribution in Japan can only be conducted by an entity that is registered with the Financial Services Agency (“FSA”) as a Financial Instruments Business Operator (“FIBO”), comparable to a fully licensed broker-dealer in the US. If marketing shares of a corporate type fund or units of a trust type fund, the FIBO will need what is referred to as a Type-1 license. If on the other hand, the FIBO is placing partnership interests, it will need a Type-2 license. In either case, an 8
asset manager that decides to rely on the securities distribution approach will need to decide whether to incorporate a company in Japan and apply for their own FIBO license or to work with an established FIBO as their outsourced placement agent. This can be a difficult choice since the first option that offers complete control of the branding and marketing process is both expensive and time consuming. The other more economical option leads to the delegation of the sales and marketing strategy to a third party that may not execute in a manner that is satisfactory to the asset manager. The asset management approach also comes down to a choice of incorporating locally and subsequently applying for a Discretionary Fund Management (“DIM”) license or working through an established local entity already holding a DIM license. The fundamental difference between the two approaches is that in the case of the asset management approach, the manager cannot sell funds. Rather, placements are made by executing a discretionary mandate agreement with each separate investor. Establishing its own company with the requisite fund management license enables an asset manager to enter into those direct agreements with allocators such as pension funds. But the set-up and approval process is slow and the regulatory requirements high. Working as a sub-contractor to an existing domestic DIM is a faster and less expensive alternative but the downside is that the asset manager will have a difficult time in developing any meaningful relationships with the pension funds. Before asset managers despair the difficulty in acquiring a foothold in Japan, they should TOKYO FUND SERVICES IN FOCUS | Dec 2020
Teneo
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JAPAN’S PREMIER PROVIDER OF FUND PLACEMENT SERVICES & TAILORED DISTRIBUTION SOLUTIONS EXPERIENCE FUNDS FOCUSED BUSINESS LICENSING & COMPLIANCE FLEXIBILITY
17 year history with an extensive investor network, a strong reputation, and broad name recognition within the local industry. Offering an exclusive focus on the marketing of funds, with the requisite licenses to deal across the entire range of asset classes and fund structures. The largest independent, foreign owned boutique Financial Business Instruments Operator in Japan holding both the Type-1 and Type-2 securities distribution licenses. Applying an entrepreneurial approach to our business, we craft creative distribution solutions in a flexible and responsive way.
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Financial Institutions・Pensions・Life Insurance Companies・Major, Mid-size, and Regional Banks Trust Banks・Investment Trust Companies・Large and Mid-Sized Securities Brokers
COMPREHENSIVE FUND PLACEMENT Functioning as a fully licensed fund distribution partner in Japan, we provide asset managers with complete turn-key support throughout the marketing process, along with ongoing assistance after closing.
GLOBAL FUND BANK A fund promotion and capital introduction website accessed by over 225 Japanese institutional and pension fund organizations, designed as a cost-effective way to enter the market, grow fund recognition, and support the capital raising process.
CUSTOMIZED DISTRIBUTION SOLUTIONS We offer individually tailored service packages for managers who require some assistance in Japan from a regulated distribution partner but do not need the full complement of support services provided through our comprehensive fund placement program.
For further information, visit us at www.teneopartners.com or contact us at inquiry@teneopartners.co.jp Hulic Nishi Ginza Dai-2 Building, 6F, 2-2-4 Ginza, Chuo-ku, Tokyo 104-0061 Japan | +813- 4550-2518
T E N E O PA R T N E R S
be encouraged by the effort that the FSA and the Government of Tokyo have undertaken to make the licensing effort of the asset management approach a bit easier. This is a relative statement however because although the DIM application process may now be easier, the requirements for qualifying and the subsequent oversight by the regulator are not. Asset managers should be further encouraged by the advancement and sophistication of the overall infrastructure and ecosystem of the industry. Firms such as Gordian Capital have come into the Japanese market to provide the kind of fund management platform services to global asset managers that has been so successfully employed in Singapore. Because of that development and the solutions that the new entrants have provided, the decision to build or outsource is no longer a binary one. As a capital raising strategy, the asset management approach is used primarily for targeting pension funds. But before taking that step, an offshore manager should bear in mind that the pension fund market in Japan is a particularly insular and highly competitive one, so breaking into it is exceedingly difficult. Success by offshore managers has generally been limited to only those asset management subsidiaries of the largest global investment banks. Consequently, if the principal goal for 10
maintaining a presence in Japan is to capital raise across a broad base of investors, then we suggest the securities distribution as the best approach. The securities distribution approach can be applied not only to pension funds and corporate investors but to all types of financial institutions. There is no safe harbour for asset managers to self-market any funds the fall under the Paragraph 1 securities definition of the Financial Instruments and Exchange Act. For the purposes of funds, this would be any structure that issues shares or units. Consequently, any sales activity for those types of funds can only be conducted by a so-called Type-1 FIBO. This drives the requirement for an asset manager to either incorporate an entity in Japan and obtain its own license or to work through a local distributor. We should also note that prior to marketing these types of Paragraph 1 securities, the fund must submit a private placement notification with the appropriate local finance bureau of the FSA. A GP of a fund that issues partnership interests may self-market under the Article 63 exemption as those interests fall under the Paragraph 2 securities definition. We are finding however that increasingly more GPs are opting out of the self-marketing safe harbour to avoid the annual filing that is required under Article 63. In those cases, they are required to use a Type-2 licensed FIBO for the marketing and distribution of their fund. Fortunately for GPs, there is no requirement for a private placement notification with the FSA for their Paragraph 2 securities. The positive news for asset managers is that there are placement agents such as Teneo Partners that provide creative sponsorship solutions which break the dichotomy between maintaining control of the marketing process and outsourcing all to a licensed third party. n Stanley Howard Founder & CEO, Teneo Partners Stanley Howard is founder and CEO of Teneo Partners Japan Limited. Employed by the Japanese trading company ItoChu after graduating from the University of Michigan, he later completed his MBA studies at Northwestern University. After graduate school, he held various positions with Smith Barney Harris Upham, Morgan Stanley, and Investor Select Advisors prior to founding Teneo Partners. Stan was born and raised in rural Japan, giving him a level of understanding of the culture that few foreigners have.
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SS&C EZE
Partner selection crucial as alternatives managers hope to benefit from growth Interview with Edward Bee
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he alternatives and offshore business is gathering momentum in Tokyo as industry players witness growing demand and as government initiatives begin to bear fruit. This trend has led to changing technology needs as managers seek to accommodate global investors and adapt their infrastructure. “As a provider, we see a spike in activity,” said Edward Bee, Managing Director, APAC, at SS&C Eze. “We have more demand for our front-to-back platform Eze Investment Suite in Tokyo over the last two years than in the previous 10. The initiatives the Tokyo Metropolitan Government has put into place to grow the alternative and offshore businesses are working.” Globalisation across the financial markets is increasing and investors worldwide want access to Asian markets. Japanese managers must accommodate a wide array of technology infrastructure needs. “Some of the incumbent technology platforms were built around a domestic market and had difficulty to accommodate the added complexity of a global strategy,” notes Bee. “This operational challenge has been a primary driver for why people are looking to third-party technology solutions.” After a decade of very little new hedge fund activity in Tokyo, signs are emerging of a strong comeback for Japan’s hedge fund industry. At least eight new fund managers obtained licenses to operate in Tokyo over the past 12 months, demonstrating the desire to grow Tokyo’s role as a financial hub. The global Covid-19 pandemic has dampened the takeoff of the Japanese hedge fund market. Access to US allocators has been challenging but is improving. Bee comments: “We have witnessed some delays and some TOKYO FUND SERVICES IN FOCUS | Dec 2020
of the funds we have been speaking with have pushed back their launches. However, many have recently started to target Q1 launch dates.” To support this progress, the Tokyo Metropolitan Government (TMG) introduced the Emerging Manager Program, which includes operational cost subsidies for startups and real estate access. TMG will also grant more flexibility in terms of licensing for early-stage hedge fund managers. To ensure hedge funds start their operations off on the right foot, TMG launched a “Qualified Outsourcing Provider” programme to steer managers towards the most reputable and knowledgeable providers in the industry. The government is helping participating startups control costs through subsidies. SS&C Eze is one of eight providers to be approved as a Qualified Outsourcing Provider and is one of the first global investment technology players to be granted this status. Bee remarks: “We hope to use this as a starting point to become a key provider in Japan’s resurging hedge fund market, and to be able to provide a robust and scalable global technology platform to help managers streamline their business as they grow. While the Japanese hedge fund market is rebounding, SS&C Eze is already working with some of the Emerging Managers Program’s early qualified hedge fund managers. We are leaning on our extensive experience in helping start-ups support their daily workflows. New managers must focus on finding reliable partners, not just vendors. Bee notes: “Having a firm with a longstanding history of implementing and continuing to support firms like yours is critical. Our clients expect an expert client service team familiar with 11
SS&C EZE their business and their workflows. Managers must make sure their chosen provider can implement solutions quickly so their investment operations can get up and running without delay.” Bee stresses it’s all about asking the right questions before making a selection: “You need to ask whether you pay for implementations or upgrades and how long they usually take. Get a clear sense of how training is handled, and what documentation and other resources are available to ensure your investment operations are running smoothly.” Another critical aspect managers must consider when selecting partners is security. “Your vendors should put security at the forefront of your operations. Finding a vendor with cybersecurity best practices such as ISO certifications is a great way to ensure your vendor’s offering has your data covered and secure,” Bee advises. Investor requirements have been changing, and having the right partner can help a manager respond to those demands swiftly and appropriately. For example, investor due diligence is more rigorous than ever. Bee says: “We are finding more investors want to know what rules are in place to satisfy their demands. They have also been asking for access to the firm’s charters so they can see exactly the compliance rules in place to satisfy investor mandates and the fund’s prospectus.” Investors don’t just want to know their money will be safe; they also want to make sure their providers are running a tight ship. Bee explains: “There is much emphasis on understanding how funds manage risk. Investors also want to know how information flows throughout investment management systems and how the fund provider controls the process’s connections. “Institutional investors are savvier than ever before. To win and keep their attention, you should equip your business with a reliable platform and knowledgeable, supportive service, from the start.” Bee emphasises start-up or emerging funds should not wait until after launching their fund to implement critical investment operations functions: “An institutionalised infrastructure from the start will make fund-raising from institutional investors a lot easier. Describing the business plan, which includes the infrastructure you have in place, is required as 12
part of the license application process with the Financial Services Agency.” Additionally, the technology needs to meet the operational demands of an investment operation, such as secure, mobile access to critical functions from remote locations. Cloud solutions are increasingly crucial. Since 2018, the number of SS&C Eze clients deploying Eze Investment Suite in the cloud has more than doubled. SS&C Eze has also seen the rapid adoption of Eze Eclipse since launch, with over 150 firms signing onto the cloud-native platform. As a manager’s assets grow, their compliance needs also become increasingly complex. Bee says: “As your business grows, you’ll want your technology partner to be in a position to respond to your needs, and the demands of the market, with timely and effective product updates. You may have to adhere to beneficial ownership and jurisdictional regulations across the regions you are trading in. These regulations and new complexities require firms now more than ever to leverage sophisticated compliance solutions to help support the growth of the firm.” n
Edward Bee Managing Director, Head of APAC Sales, SS&C Eze Edward Bee is managing director, head of APAC sales for SS&C Eze. He is responsible for strategic growth and business development for the APAC region and oversees teams based in Hong Kong, Singapore, and Sydney. Edward joined SS&C Eze in 2005 and has held numerous leadership positions across North America, EMEA, and Hong Kong. Most recently he led client services and operations in EMEA where he oversaw a successful operational reorganisation, unifying multiple teams and growing the client services organisation by 50%. He also previously led the US West Coast and Midwest regions, playing a key role in scaling the company’s operations including the launch of SS&C Eze’s Chicago office. In his 15 years with the company he has overseen more than 250 client implementations of Eze’s investment management solutions. Edward has more than 20 years of experience advising and consulting on financial and investment technology. Prior to joining Eze, Edward was the regional consultant and head of northern California, Utah, and Idaho for Yahoo. Edward graduated magna cum laude from California Polytechnic State University, San Luis Obispo with a degree in international business and management and a minor in political science and economics.
TOKYO FUND SERVICES IN FOCUS | Dec 2020
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APPLEBY
The unit trust as an option for Japanese managers Interview with Christian Victory
T
here is a continuing interest among Japanese investment managers to seek to broaden the suite of fund products they offer clients. They have been considering new structures and vehicles in order to provide a more diverse and efficient offering. One consistently popular structure considered is the Cayman Islands unit trust. This is a common vehicle for structuring hedge funds in Japan and can provide investors with a traditional and familiar experience when compared with a domestic Japanese investment trust. “The Cayman Islands unit trust can work very well as a complementary option for Japanese managers,” remarks Christian Victory, Partner, Appleby (Cayman) Ltd, “The structure has been a recurring theme over many years and is quite popular. It is something managers in Japan are very familiar with which we can assist effortlessly and seamlessly as we have both broad and deep experience in this area.” From its perspective, Appleby can establish vehicles for Japanese managers, fund promoters and sponsors to target Japanese investors in a business focused, commercial and efficient manner. “Managers and investors in Japan understand the role of the trustee and the role of the manager within a unit trust. This structure, in particular, allows for a lot of flexibility and delegation of responsibility,” notes Victory. He explains how the trustee, based in the Cayman Islands, provides ongoing independent governance and fiduciary oversight. The trustee typically delegates the day-to-day operational responsibilities to the manager, who in this case would be based in Japan, and other relevant service providers under the terms of the unit trust deed. Being a tax neutral jurisdiction with a high concentration of expert service providers, the 14
Cayman Islands can provide a tax efficient and attractive addition to an investment manager’s suite of existing products. Victory points out: “The Cayman Islands unit trust structure we can assist managers in establishing has proven to be a very useful tool to complement a Tokyo manager’s suite of investment products. We also have the honour of counting some of Japan’s consistently top performing and award winning managers among our clients for many, many years.” Victory outlines how managers targeting investors globally may want to set up a master-feeder structure: “Sometimes a unit trust structure might sit alongside other fund products which feed into a proprietary fund or some other aggregating vehicle. This creates economies of scale, synergies and corresponding efficiencies for target investors. “So, a manager might set up a limited partnership feeder for US investors, a corporate feeder for European or non-US or US tax exempt investors as well as a unit trust structure which is more familiar to Japanese investors. All these funds can feed into a single master vehicle for example.” This would be a very transparent structure without any layering of fees. The main purposes would be to achieve tax efficiency, economies of scale and efficiencies of process. “The aim is to do whatever is best for the fund meaning, ultimately, whatever is best for the investors,” Victory stresses. n
Christian Victory Partner – Fund & Investment Services, Appleby Christian is a Partner in the Corporate team. He specialises in advising on all matters relating to Cayman Islands alternative investment vehicles, private equity, funds and investment services in addition to regulatory and compliance matters. Christian is ranked as a ‘next generation partner’ in Legal 500 2020 and is the current Secretary of AIMA Cayman 2020-2022.
TOKYO FUND SERVICES IN FOCUS | Dec 2020
Intelligent and insightful offshore legal advice and services. Delivered with perspective.
FUNDS & INVESTMENT SERVICES Appleby Cayman Islands is grateful to have a deep tradition of establishing highly successful fund structures, including unit trust funds, for Japanese investment managers over the past decade. We have the honour of counting consistently top performing and award winning Japanese managers among our top clients. Our services are tried and tested and provide effortless and seamless solutions for Japanese managers, sponsors, promoters and their clients. Our team of highly regarded, experienced investment fund specialists, possess the commercial aptitude, industry knowledge and legal skills necessary to ensure that our clients’ fund and transaction structures are optimally designed to meet their needs, and the needs of their target investors.
Visit applebyglobal.com to learn more.
D I R E C TO R Y
APPLEBY Appleby is one of the world’s leading international law firms with offices in ten highly regarded, well-regulated global locations. Our Corporate team is one of the largest and most recognised offshore, advising a wide variety of local and international public and private companies, financial institutions and private individuals, including a large number of FTSE 100 and Fortune 500 companies, on every aspect of corporate and commercial law. Our Funds and Investment Services team advise clients across a wide range of services in relation to hedge funds, mutual funds, other collective investment schemes and a wide range of financial products. Appleby is regularly recognised for our professionalism, integrity and excellent client service, and these are the values we pride ourselves on and are at the core of our business.
www.applebyglobal.com
Contact: Laurie Ebanks | cayman@applebyglobal.com | +1 345 949 4900
GORDIAN CAPITAL Gordian Capital Japan (“GCJ” or “Firm”) is a Tokyo-based asset manager offering operational and infrastructure solutions to support offshore asset managers who are confronted with the challenges of establishing a Tokyo base for the research, investment, and trading of Japan assets, be they public or private assets. The Firm’s affiliate, Gordian Capital Singapore, is recognised as Asia’s leading institutional fund management platform with over USD5 billion in assets under management. Gordian Capital Japan seeks to carry on with the same business purpose in Tokyo with its newly granted Discretionary Investment Management license. Gordian Capital Japan operates as a Discretionary Investment Management and Advisory firm under the regulation of the Financial Services Agency of Japan. It is also a registered Investment Advisor with the United States SEC.
www.gordian-capital.co.jp
Contact: Alvaro Tamura | info@gordian-capital.co.jp | +81 3 4520 2323
SS&C EZE SS&C Eze is helping 1,900+ global asset managers transform their investment process to optimise operational and investment alpha and grow their business. We deliver cutting-edge cloud, mobile, and on-premise solutions to maximise efficiencies across trade order management, execution, compliance, commission management, portfolio accounting, and investor accounting. From start-up and emerging funds to the most recognised and established institutions, SS&C Eze has provided buy-side firms with innovative and award-winning technology solutions backed by unparalleled client service for 25 years.
www.ezesoft.com
www.teneopartners.com
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Contact: Edward Bee | sales@ezesoft.com | +852 3664 1117
TENEO PARTNERS Teneo Partners Japan Limited, founded in 2003, has developed into an organisation that is highly regarded for its ability to provide effective placement and innovative distribution solutions in Japan to global asset managers. With an organisation of 16 professionals and licensed as both a Type-1 and Type-2 Financial Instruments Business Operator (read broker-dealer), Teneo Partners is the largest foreign-owned boutique securities firm focusing exclusively on the marketing of investment funds across all asset categories. Teneo Partners offers three core services: the comprehensive fund placement service; the unbundled marketing and regulatory support service; and the capital introduction style data room service for promoting funds to Japanese institutional investors. Utilising these core offerings as its building blocks, Teneo Partners crafts customised distribution services for global asset managers. Contact: Stanley Howard | info@teneopartners.co.jp | +81 3 4550 2518
TOKYO FUND SERVICES IN FOCUS | Dec 2020
