Delegated or ‘hosted’ fund management is a professional service whereby an FCA authorised firm can step in as the investment manager and provide the fund compliance. The client firm may already be regulated in other jurisdictions or can become an appointed representative to provide advice to the host, acting as portfolio manager.
Hosted fund management can lower the barriers to entry for new market participants. Additionally, assistance from a knowledgeable host can help firms navigate the complexities of fund compliance. This oversight enables firms to maintain best practice standards and ensure smooth operation of processes.
Thornbridge Investment Management, a specialist in regulatory hosting and delegated fund management, explain the value of diligent supervision and strategic advice in helping clients run funds smoothly.
The Hosted Fund Management Model
Regulatory hosts are FCA licensed, regulated entities that can partner with investment advisors to manage the compliance functions associated with running an investment fund.
The client might be a new entrant to the market, an organisation with a niche investment focus, or an independent investment adviser without the infrastructure to manage every aspect of administering the fund and maintaining compliance.
This option can enable cost effective and efficient entry to the market. However, it is vital to work with an appropriately resourced host, with a team who possess the necessary level of experience to advise on fund structuring and regulatory requirements.
The host firm is responsible for regulatory applications and notifications, ensuring compliance, and identifying relevant technology and systems to support complex processes. The benefit of outsourcing these responsibilities is enabling the advisor to focus on their area of expertise.
As experienced regulatory hosts, Thornbridge also supports clients with a suite of policies and procedures, covering essential items such as due diligence, financial crime, complaints handling, record keeping and product governance. Thornbridge will also ensure expectations regarding AML and KYC are met, in part by utilising a range of specialist technology. With a knowledgeable team on hand, they are well equipped to handle challenges and complexities.
The Role of Management and Oversight in Delegated Fund Management
Hosted fund management offers businesses an established, robust framework against which to operate efficiently and in full regulatory compliance. Our clients use this level of assurance to concentrate their time and resources on growing their businesses and offering added value to their own clients and investors.
Sound management can minimise client firms’ exposure to risks associated with non-compliance investigations and complaints. These risks can carry the potential for fines, sanctions, and serious reputational damage. In the event of a breach or complaint, the host firm will also be able to assist with handling and resolution procedures.
Additionally, there are distinct cost-efficiencies, making high-quality fund management accessible to smaller firms.
Key Aspects of Monitoring & Oversight in Hosted Funds
Compliance monitoring and good fund governance are not one-time activities that only occur when a new fund is established or launched, but rather an ongoing need. Hosts must deal with oversight of financial reporting and audit requirements, as well as conducting due diligence on the underlying investments and parties as necessary.
Pitfalls That Often Arise Due to Hosted Funds Being Poorly Managed
There are significant risks associated with poor management decisions and lack of oversight in fund management activities. Often these issues stem from a lack of clarity regarding the division of responsibilities between the investment manager and the advisors. Clear agreements, responsibilities allocated according to approved functions and appropriate processes can help to mitigate these.
In many cases seen by the FCA, serious regulatory breaches could have been avoided with correct oversight. Penalties are necessarily severe, and restorative action will be sought for failings to address them going forward.
Best Practice Standards for Robust Hosted Fund Management and Control
With years of combined expertise and a well-resourced base in the City of London, Thornbridge are well placed to advise anyone considering launching a fund.
With any clients we assist, clear contractual agreements will always be put in place to specify exactly which roles and responsibilities lie with each party, along with a schedule for independent audits and fund reviews.
This paves the way for collaborative communications and smooth processes, designed to engage the wider team involved in the operations of a fund. Thornbridge have established, tried and tested infrastructure in place to facilitate all stages of set up and ongoing management.
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About Thornbridge Investment Management
We offer hosted fund management & regulatory hosting to appointed representatives. Based in the City of London, we provide outsourced solutions to investment firms and individuals under our regulatory umbrella. Our areas of focus are fund advisory, investment advisory and distribution. Thornbridge is authorised and regulated by the Financial Conduct Authority (FRN: 713859).
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Liv Ranson
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+44 (0)203 972 4510
