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Jeremy Lees, Linear Investments

MAP provides full operational support

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Linear Investments allows emerging managers to leverage its managed account platform, enabling them to utilise multiple managed accounts, and avoid having to go down the costly route of setting up a hedge fund on day one. 

“At this date, Linear has 105 active hedge fund/managed account prime brokerage clients live. Over the past three months we have brought on 10 new clients; five prime brokerage, one managed account and four hedge funds. We are actively in discussion with 12 new clients (two thirds based in the UK) who are thinking of joining the Linear platform, in addition to several early stage enquiries,” explains Jerry Lees (pictured), Chairman of Linear Investments. 

Moreover, Linear’s Asset Manager joint ventures enable Linear to set up Irish, Luxembourg, Malta, or Cayman structures that meet UCITS and AIFMD directives.

In that sense, a MAP plays a vital role, not just for investors who want greater control and transparency over their hedge fund allocations, but for new managers who need a cost-effective solution. 

As Lees explains: “In terms of regulatory set-up and technology set-up, if you are a small start-up manager it’s not worth setting up a hedge fund straight away. It makes more sense to set up a managed account structure because creating a hedge fund with EUR5 or EUR25 million will mean you are going to struggle from a cost/revenue perspective.”

There’s also not enough of a tax advantage to doing so. If someone launches a hedge fund with EUR10 million and the manager uses a 1/10 fee structure, for example, and they make a 10 per cent return in Year One, they are only going to generate EUR200,000. 

“It’s impossible for small start-ups to stay in business without using managed account platforms that give them a lower cost alternative. The message we have is `keep it simple’. Run a managed account on an FCA regulated platform, with all the infrastructure support that comes with that: use of Linear regulatory capital, back office, compliance, risk management, regulatory reporting, transaction reporting, trade execution and clearing, IT systems and recorded calls/data, track record audit and so on,” says Lees. 

Linear clients have the option of joining the platform as an Appointed Representative. This saves them a huge amount of time and money setting up their own regulated entity. The cost of complying with AIFMD is several hundred thousand euros and the AIFM is required to have initial capital of at least EUR125,000. Under the platform, Linear has covered these costs and capital distributed across multiple firms.

“We can get a new client up and running as an Appointed Representative in five to six weeks, for a fixed monthly fee, whereas it would take up to a year to apply for their own regulated license,” confirms Lees.

The beauty of this arrangement is that managers fully own the track record, which is recorded within Linear’s systems and can be audited. Then, if they are ready to set up a hedge fund two or three years down the line, they can take the audited track record with them. 

“In short, we provide full operational support. We have 135 trading desks, technology infrastructure: everything is set up ready for them to start trading. They can use our regulated structure at a fraction of the cost of setting up their own fund,” concludes Lees

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