Emerging fund managers in the APAC region face unique challenges in today's fundraising environment. It is crucial to understand and address these challenges strategically to maximize opportunities for success.
Establish a Strong Track Record: LPs prioritize track records when considering investments. Differentiate yourself by developing a clear and easily understandable—but unique—investment strategy. Focus on showcasing your expertise, your past successes and demonstrating how your approach adds value to the intended types of investors.
Navigate External Challenges: Geopolitical crises, inflation, the lasting impact of COVID-19 and volatile markets have created a challenging environment for emerging managers. Stay informed about market trends, adapt to changing conditions, and develop fundraising and investment strategies to mitigate risks associated with these factors.
- VCC Structure: Consider using the VCC structure in Southeast Asia for benefits like tax incentives, simplified fund administration and easier fund repatriation.
- Cayman or Delaware Structure: Establishing a fund with a Cayman Islands or Delaware structure can be advantageous when targeting US institutional investors due to regulatory compliance and investor comfort.
- ESG Integration: Differentiate by incorporating sustainable and responsible investment practices, attracting investors focused on ethical and sustainable investments.
- Digital Transformation: Embrace digital technologies, data analytics and cybersecurity measures to enhance efficiency, communication and risk management.
- Diversification and Risk Management: Diversify portfolios across asset classes, regions and sectors to manage risk and seize opportunities in volatile markets. Implement robust risk management frameworks and stress-testing scenarios to mitigate downside risks.
Overcome Investor Skepticism: Today, LPs are exceptionally cautious about investing in first-time funds, making it harder for emerging managers to build relationships. Focus on building trust through full transparency, consistent communication and demonstrating your investment expertise.
Early Relationship Building: Building relationships with investors well in advance of fundraising is essential. Start engaging with potential LPs at least two years before you plan to raise capital. Regularly update them on your progress, goals and timelines to keep them informed and interested in your fund.
Select Reputable Partners: LPs often prefer working with established partners in the industry. Consider seeking advice from well-known and respected third parties to instill confidence in potential investors. This can help streamline due diligence processes and build trust.
Embrace Technology: Leverage technology to evaluate and monitor investments more efficiently. Adopt innovative tools that streamline processes, improve data analysis, enhance investor reporting and maximize operational consistency. A strong tech foundation not only can empower you with scalability but has also become an increasingly important element that investors seek among fund managers.
Local Talent Challenges: The APAC region encounters significant difficulties in sourcing and retaining skilled professionals within the asset management industry. The scarcity of local talent with relevant expertise poses a challenge for emerging fund managers, requiring them to invest additional resources in talent acquisition and development strategies.
Seek Professional Support: Partnering with an experienced fund administrator can provide valuable insights and support in navigating the challenges faced by emerging managers. Look for a global provider with a strong track record, proprietary technology and expertise in the local APAC region.
Licensing Timeline: APAC fund managers, particularly in countries like Singapore where the regulatory authority (MAS) has a significant backlog, may face delays of 6-9 months or longer in obtaining the necessary licenses, impacting their ability to commence operations and raise capital.
Local Regulations in the APAC Region
There are many jurisdictions within the APAC region, and each locale has its regulations. There are some domiciles with regulations that are of particular interest to fund managers.
VCC (Variable Capital Company) in Singapore:
- VCC is a new corporate structure introduced in Singapore in 2020.
- It provides a flexible and efficient vehicle for fund managers to set up and operate investment funds.
- VCCs enjoy tax benefits, including exemption from Singapore's Goods and Services Tax (GST) and dividend withholding tax.
- The VCC framework allows for both open-ended and closed-ended funds, expanding the options available to fund managers.
- Read our "Singapore VCC Update" whitepaper to learn more.
LPS (Limited Partnership System) in Japan:
- LPS was introduced in Japan in 2019 to enhance the competitiveness of the country's asset management industry.
- LPS offers greater flexibility and reduced administrative burden for fund managers compared to traditional investment structures.
- It allows for forming investment funds with separate legal personalities and limited liability for partners.
- LPS funds are subject to fewer regulatory requirements, such as simplified reporting and disclosure obligations.
HKLPF (Hong Kong Limited Partnership Fund) in Hong Kong:
- HKLPF was launched in 2020 to attract more private equity and venture capital funds to domicile in Hong Kong.
- It provides a new legal framework for the establishment and operation of limited partnership funds.
- HKLPF funds enjoy tax benefits, including exemption from profits tax on income derived from qualifying transactions.
- The framework enhances the transparency and regulatory oversight of private equity and venture capital funds in Hong Kong.
ASIC (Australian Securities and Investments Commission) in Australia:
- ASIC regulates private market fund management in Australia, overseeing conduct and compliance.
- ASIC safeguards investor interests by setting rules for fund managers to act in their best interests and provide proper disclosure.
- Fund managers must obtain an Australian financial services license (AFSL) to comply with licensing requirements.
- Strict rules govern disclosure, investor protection and anti-money laundering.
- Australian regulations cover specific funds like superannuation and managed investment schemes.
Please note that regulations are subject to change, and fund managers need to stay updated with the latest requirements and guidelines in each jurisdiction.
At SS&C, we specialize in assisting emerging fund managers in APAC. Our comprehensive fund administration services, backed by leading technology, can help you optimize your fundraising efforts and maximize returns. Contact us for a fresh perspective on how we can support your next fundraiser and help you thrive in a challenging market.
To learn more about how emerging managers can address these challenges in a difficult market, view our "Embracing the New - Decoding LPs' Perspectives on Emerging Managers" webinar or download our "Embracing the New - Decoding LPs' Perspectives on Emerging Managers" report about LP’s perspectives on emerging managers.
Written by Vivian Zou
Senior Director, SS&C GlobeOp