Global Fund Connections LLC (GFX) is a multi-disciplinary FinTech firm that has developed the innovative GFX Global Hub and SpokeSM System – the next generation solution for investment management organizations to efficiently operate multiple funds and other products with the same investment strategy; effectively expand across borders and national market segments; create and operate enhanced sub-advisory/private label structures for their distribution partners; and employ sophisticated portfolio management techniques to customize a portfolio’s investment strategy for a specific national market or market segment.
GFX GLOBAL HUB AND SPOKESM SYSTEM
The GFX Global Hub and SpokeSM System involves the separation of the portfolio components of an investment fund from its administration and distribution components. Once separated, other existing or new investment funds can likewise separate investment components and invest through that same investment portfolio. This single investment portfolio is referred to as a GFX Portfolio, and the creation and operation of a GFX Portfolio together with the Funds investing through it is referred to as the GFX Global Hub and SpokeSM System or the GFX System.
As the portfolio components are separated, so are the expenses (e.g., management fee, custodial fee) associated with them. These expenses, in turn, form the basis for the expense ratio of the GFX Portfolio. These diagrams illustrate the strategic goals of the GFX System – minimize the number of portfolios and maximize the number of markets.
The GFX Portfolio operates as a single portfolio with a single investment manager, a single safekeeper, a single auditor, and a single portfolio compliance platform. Likewise, the GFX Portfolio has a single investment objective and strategy, and a single set of investment policies and restrictions. The operations taking place through the GFX Portfolio comply with the laws and regulations governing each of the Funds. Each GFX Portfolio is tax transparent.
While investing through a GFX Portfolio, each Fund can have a different: (1) sponsor, (2) domicile, (3) name, (4) legal regime (e.g., investment fund, insurance, banking), (5) legal structure (e.g., SICAV, OEIC), (6) pricing structure (e.g., total expense ratios, commissions), (7) valuation structure, (8) share classes, (9) currency of denomination, (10) distribution policy (e.g., roll-up, distributing), and (11) fiduciary (e.g., depositary bank, individual directors). Each Fund customizes each of these administration and distribution components for its market, regardless of the options other Funds use to customize these components for their markets.
Economies of Scale
As additional Funds invest through that GFX Portfolio, the expense ratio of the GFX Portfolio becomes lower (i) as break-points in the management and safekeeping asset-based fee schedules are reached, and (ii) as transaction-based expenses (e.g., trading, settlement and holding expenses) are spread over a greater number of Funds. As a result, the aggregate expenses of each Fund are less than they would be if it operated as a traditional investment fund. Although the significance of these economies of scale depend on the asset size of the GFX Portfolio and the Funds, they are greatest for a small or newly-created Fund investing through a relatively large GFX Portfolio.
Seed Capital
Since the assets of each Fund are invested through its corresponding GFX Portfolio, a Fund does not require any seed capital to establish a viable portfolio of securities, either pre-launch or thereafter while public assets are small. This is the same result as for a new share class or a new feeder fund.
Performance Portability
As the portfolio components of an existing investment fund are separated from the other components to become a GFX Portfolio, that portfolio of securities retains its performance track record, adjusted for expenses. Further, at the time of its organization, a newly-created Fund may adopt the same track record as its corresponding GFX Portfolio, adjusted for expenses. Performance portability for new funds within the GFX System should be substantially the same as for a new share class or a new feeder fund.
Legal/Regulatory Considerations
The general legal, fiscal and regulatory issues underlying the GFX System were presented to the relevant authorities in the U.S., UK, Luxembourg and Ireland. The authorities in the UK, Luxembourg and Ireland confirmed that investment funds organized in those jurisdictions and operating as UCITS could participate in the GFX System. GFX believes that the issues raised in the U.S. have also been adequately addressed. However, as with other fund structures – including traditional ones – no assurance can be given that, in the context of any specific application or filing, additional issues may not arise which would lead the applicable regulatory or fiscal authority to deny, reject or significantly modify that application or filing.
More Information
Global Fund Connections LLC (GFX) is a multi-disciplinary FinTech firm that has developed the know-how and software for this innovative GFX System. For more information concerning the GFX System, including GFX’s know-how and software licensing program to implement and support it, or to be added to our mailing list, please contact us at info@GlobalFundConnections.com.
STRATEGIES
Cross Border/Cross Market Entry
The GFX System permits an asset management firm to create new Funds customized for new markets that from fund launch would have critical mass (through the assets from other Funds being managed through that GFX Portfolio), and a performance track record (i.e., the track record of that GFX Portfolio adjusted for expenses). Therefore, the GFX System is the most effective means for a Fund sponsor to expand across borders and across national market segments.
Efficient Sub-Advisory/Private (White) Label Arrangements
A more efficient and cost effective sub-advisory or private label arrangement can be created and operated through the GFX System since the sponsor of a Fund and the investment manager of the GFX Portfolio can be unaffiliated. As with a traditional sub-advisory or private label arrangement, the sponsor of a Fund can select its domicile, name, legal regime, legal structure, pricing structure, valuation structure, share classes, currency of denomination, distribution policy and fiduciary.
As a result, the Fund would function as a seamless part of its sponsor’s Fund range, in the same manner as would be the case with a traditional sub-advised or private label Fund. However, unlike a traditional sub-advisory or private label arrangement, the Fund would commence operations with a critical mass of assets and a performance record. Likewise, the investment manager would continue to have only a single large portfolio to manage, instead of two (one of which may be quite small) as would be the case with a traditional sub-advisory or private label arrangement.
Investment Overlay
Each Fund may also change, expand or modify the investment strategy of a GFX Portfolio for its national market or market segment. A Fund does this by holding additional securities at the Fund level, by entering into derivative contracts at the Fund level, or by investing a portion of its assets through another GFX Portfolio.
Fixed Income Portfolios. In addition to its investments in fixed income securities through a GFX Portfolio, the sponsor of a fixed income Fund may use derivative instruments at the Fund level to change the duration of its investments. As a result, a single fixed income GFX Portfolio could have one Fund with a long duration, another with an intermediate duration, and a third with a short/intermediate duration.
Equity Portfolios. In addition to its investments in equity securities through a GFXSM Portfolio, the sponsor of an equity Fund may use derivative instruments at the Fund level to offset or expand the exposure of the GFX Portfolio to specific national or industry segments, or to specific issuers or groups of issuers.
SOLUTIONS
The GFX System is the next generation solution for the product line challenges of asset management firms, by permitting firms to operate a single portfolio with assets from investment funds and other investment products sold publicly in the U.S. (mutual funds), Europe (UCITS) and Asia, and privately through separate managed accounts (SMAs).
Global (U.S./UCITS)
The GFX System is the solution for asset management firms to respond to the challenges of operating multiple investment funds and separate managed accounts (SMAs) with the same investment objective and strategy.
The GFX System permits firms to more efficiently operate those funds and accounts; effectively expand across borders and national market segments. This System is also used for banking, insurance, and other investment products.
ETFs
The GFX System is the solution for asset management firms to respond to the challenges of extending the trading hours and enhancing the liquidity of the shares of their ETFs.
The GFX System permits ETFs domiciled in the U.S., Europe and Asia to have:
- A single, continuous 24-hour global trading market for investors in and market makers for ETFs, regardless of their domicile or the exchanges on which their shares are listed, from the opening of the exchanges on the Pacific Rim on Monday morning until the close of the New York exchanges on Friday night, and
- The ability to convert shares of one participating ETF into shares of each other ETF at any time.
Pension Assets
The GFX System is the solution for asset management firms to respond to the challenges of permitting pension funds and other tax-exempt investors to invest through the same portfolios as taxable ETFs and investment funds. The GFX System permits tax-exempt investors to combine the gross dividend tax treatment and investment flexibility of a separate managed account (SMA) or pooled account, with the lower expenses and reduced tracking error or greater diversification of the larger portfolio of a taxable ETF or investment fund.
Brexit
Post-Brexit, the GFX System is the solution for asset management firms to respond to the challenges of maintaining the functionality of the UCITS passport in a cross-Channel context. The GFX System will permit UK (CIS) and EU27 (UCITS) ranges of existing or newly-created funds to replicate and enhance the functionality of a UCITS passport, without the limitations of a traditional mirror or parallel fund, a fund re-domiciliation, or reliance on a revocable equivalency designation. This will, in turn, permit the investment portfolios of an asset management firm to be offered on a Pan-European basis after Brexit.
Copyright (c) 2014-2019 Global Fund Connections LLC. All Rights Reserved. “GLOBAL FUND CONNECTIONS” and “GFX” are registered service marks of Global Fund Connections LLC. “GLOBAL HUB AND SPOKE”, “GFX” and “GFX PORTFOLIO” are service marks of Global Fund Connections LLC.