Three leading industry service providers, CAIS, Citi and Atlantic Fund Services have collaborated to create ALTX Trust, the first series trust designed to provide a turnkey solution for hedge fund managers that seek to launch ’40 Act mutual funds.
The collaboration of these firms brings together the capabilities and services required to successfully launch and distribute alternative mutual funds, alleviating the need for significant operational infrastructure hedge funds would otherwise need to build internally.
CAIS, with its expansive footprint in the RIA and broker-dealer network, will list newly launched ALTX mutual funds on its platform and provide wholesale distribution services. As with all funds listed on CAIS, Mercer will conduct strategy due diligence, ongoing monitoring and provide each new fund with a rating.
Atlantic Fund Services will provide fund administration, governance and compliance support, while Citi’s Investor Services division will be the exclusive global custodian for the trust, and will serve as the preferred prime broker to newly launched alternative mutual funds.
The launch of ALTX Trust comes at a time when investor demand for premier liquid alternative mutual funds is rapidly increasing. Citi recently estimated that assets held by US alternative retail mutual funds increased from US$95 billion in 2008 to US$250 billion in Q4 of 2013.
In 2014, ALTX Trust intends to attract top tier hedge fund managers and plans to launch multiple alternative mutual funds. Strategies for these new funds will include both traditional hedge fund styles, such as long/short equity and convertible arbitrage, to new quantitative disciplines and specialized asset classes including global currencies and options-writing.
Alternative mutual funds often pursue low correlations with traditional asset classes, which makes them attractive when building and diversifying portfolios.
Rafay H. Farooqui, co-founder and President of CAIS, said: "Expanding our existing funds menu to include alternative mutual funds is a natural extension of our platform and our wealth management clients will benefit from broader product selection. With the combined experience and market credibility of these service partners, the ALTX Trust will be the venue of choice for top hedge funds looking to extend their investment offerings."
Series trusts have long served as a cost effective way for investment managers to participate in a registered fund without having to manage an SEC-registered legal entity themselves.
John Y. Keffer, Chairman of Atlantic Fund Services, said: "Launching and providing ongoing supervision, administration and compliance for ’40 Act mutual funds has been our core business since the 1980s. With the establishment of the ALTX Trust platform, we are excited to have a dedicated series trust that will focus on the fast-growing alternative space."
Alan Pace, global head of Sales at Citi’s Investor Services unit, said: "Citi has been tracking the rapid evolution of the ’40 Act alternative mutual fund space and sees this as an increasingly important part of our hedge fund client’s product mix going forward. We see this platform as an innovative new approach for hedge funds that want to enter the mutual fund space quickly and cost-effectively. We are excited about the opportunity to offer an array of alternative managers, styles and strategies through the world’s largest proprietary custody network."
Since the launch of the CAIS platform, Mercer has provided investment and operational due diligence on all managers that list on CAIS. The global financial consulting leader will offer ALTX Trust fund managers thematic portfolio guidance and analytic tools, including quantitative analyses and risk assessments of alternative investments, model portfolios, research and ongoing educational resources and support.
David Eisenberg, the US segment lead for Wealth Managers at Mercer, said: "We think that this partnership is an important step in the evolution of hedge fund distribution, as it will make a broader array of alternative investment strategies accessible to individual investors, defined contribution plans, and smaller institutions."