Opening up access to hedge funds

Verity Capital (a trading name of VerityCorp Limited, which is authorized and regulated in the UK by the Financial Conduct Authority) is a London-based firm, offering both advisory and discretionary management services. It specializes in serving high net worth individuals, ultra-high net worth families, and single family offices. Its core services encompass investment solutions in liquid assets and alternative investments as well as corporate treasury solutions primarily targeted at mid-cap corporates. 

Periklis Filippou, the Founder of Verity Capital, emphasizes the firm's commitment to providing a wide range of investment options to its clients. However, Filippou acknowledges that certain asset classes pose greater accessibility challenges than others.

"Many of our clients, predominantly professional investors, are keen to diversify their portfolios with hedge fund allocations. However, obtaining access to the industry's leading funds often proves to be a significant challenge," Filippou says.

This is a problem shared by many investors, not just Verity Capital’s clients. As Filippou explains, there are two main obstacles. 

“For one, the capacity in some hedge funds is restricted. That means they cannot accept any new money. For another, minimum investments tend to be large, often on the order of 10  million US dollars per investor. Such steep entry costs make these funds inaccessible for some, particularly those looking to allocate only a segment of their portfolio to this asset class.” 

“Gaining access is particularly challenging when it comes to the industry's leading hedge funds.”

A single instrument

In order to meet its clients’ needs, Verity cast around for a new approach. Securitization provided an opportunity.

As Filippou explains: “We had already secured access to five premier hedge funds, all of which are multi-strategy and macro funds with proven success records. However, each of these funds is capacity constrained. Since we already had the access, we asked ourselves, ‘why don’t we do a single instrument under which our clients can invest in these funds with a single ticket directly via their private bank?’. Clearly the way to do this is through securitization, and so we turned to GenTwo.” 

Under the setup developed with GenTwo, Verity Capital is the investment advisor and manager of a protected cell company in Guernsey. Client orders are aggregated into this vehicle and invested into these five hedge funds. “Through this setup our clients can get access in a very nice and neat way,” Filippou adds. 

Combining access and simplicity

Client feedback has been consistently positive. “When clients see the names of these reputable funds within the instrument, they are notably impressed,” Filippou says. “We frequently receive inquiries about how one might gain access to these funds, which serves as a unique differentiator for us.”

Filippou goes on to explain that the instrument offers more than just an entry point to new investment opportunities. It also substantially reduces transactional friction, an advantage that is appreciable even to larger clients who aren't generally constrained by sizable minimum investments.

"One of our longstanding anchor investors is a reputable single family office," states Filippou. "What appeals to them is not just the exclusive access to these premier funds, but also the streamlined process facilitated by the GenTwo solution. With a single transaction through their preferred bank, they can invest in the instrument without the need to open accounts across multiple funds. This offers a convenient avenue for clients looking to allocate, say, 10% to 15% of their portfolio to hedge funds. The efficacy of the product coupled with the ease of transaction execution is what has made this product successful for us.”

“They like the fact that we give them access to these funds, but they also like the simplicity of the process.”

Indeed, Filippou says that the ease of use of the product turns out to be a very important element for many clients, one that asset managers might not completely appreciate when considering such a solution.

“While I think access is the main driving factor, easiness is important too. The fact that clients can buy this product directly from their existing bank, that they can transact through their bank, that they can see it in their existing statements, makes a difference. Many clients don't necessarily want to open another account to avoid unnecessary admin.” 

New products on the horizon

With the success of this first hedge fund portfolio product, Verity Capital now intends to do more.

“We are currently evaluating a range of options for our next products. Potential strategies include more liquid underlyings, maybe on bonds, for instance. In the Alternatives space, we are working on some Private Equity co-investment situations.”

Filippou remains confident that the dual appeal of exclusive access and transactional simplicity will continue to resonate with clients. 'The ease of engagement with these products is unparalleled,' he asserts.