Now that the first range of Milltrust’s Emerging Markets Managed Accounts Funds have launched, investors sometimes ask us ?Why one would buy the fund from Milltrust when they can invest with the manager directly??.

Whilst one is always free to invest in the offshore fund, the Milltrust Funds can be differentiated in a number of key ways:

    1. The investment management function is separated from the fiduciary function. Milltrust serves the interests of the investors and not the manager unlike the counterparties to a fund.

 

    1. Transparency is better ? rather than rely on an out of date monthly or quarterly news letter to advise you of how your capital is being invested, Milltrust permits the investor to a total look-through into how the fund is invested. For those for whom this is information overload, Milltrust monitors and evaluates the extent to which the manager is adhering strictly to the investment mandate on behalf of the investors in the managed account and monitors that the managed account is not being managed contrary to the interests of its investors first and foremost. If it the mandate is breached it can be terminated at the behest of the investor, and we don?t have to wait for the funds to be returned to the investor, they are immediately available for efficient reallocation.

 

    1. Liquidity is vastly improved as the investor can rest safe in the knowledge that if the investment management mandate is breached or the fund manager or bank is closed down, they will have immediate access to their capital. A number of clients have asked me what happens when a manager is suspended or closed down. The only impact on our fund would be that the manager may no longer be able to fulfil his role with respect to the managed account. However, the assets would be safe in the State Street account and wholly accessible, whereas the funds? assets may well be suspended indefinitely under bankruptcy or frozen by the regulator. This is another very important point as it demonstrates the safety features of having a managed account relative to an investment in a fund.

 

    1. By the way, as the problems in Mauritius amply demonstrate, offshore jurisdictions that are set up solely for tax mitigation are increasing under attack. The US Congress is repeatedly attacking Cayman as a money laundering centre, and BVI and the Cayman have become very unpopular jurisdictions with European investors. Our structure is in the EU, in a FATIF approved jurisdiction, and hence should also offer the comfort factor that it will not be attacked and will not face the retroactive tax claims that have been mooted for Mauritius by the Indian authorities.

 

    1. Managers notoriously charge fees and expenses to fund structures that are unrelated to the investment management function. These expenses should be paid for out of the legitimate management fee and not charged to the fund. Due diligence and audits on funds regularly show up these dubious charges. Fund accounts are often qualified and yet they escape the notice of the investors as they are rarerly reviewed. There is no possibility of this happening with our managed account structure where the manager is only paid management and performance fees (if applicable).

 

    1. Funds that are under the control of the manager can be rehypothecated or lend their assets. Funds also often see cash balances sitting in the account of the broker where there may be co-mingled with a bank?s own balance sheet. Last year JP Morgan received a record fine for comingling 34 million dollars of client money with its own balance sheet. MF Global went bankrupt, having misappropriated 600 million dollars of client capital, and Peregrine, another US prime broker went bust owing its clients 200 million dollars. As with Lehman, client assets should of course be held in a trust which would segregate them from the proprietary assets of the prime brokerage but they are not in most cases. Hence in the case of Lehman, offshore funds are still scrambling to get their assets back from the bankruptcy court.

 

  1. The financial world is still precariously capitalised and presents significant risk to investors. Frauds and blow-ups have been far more commonplace than the industry likes to recall.