Fundswatch: What are Third Party Funds?

原文链接：http://www.equinox.co.za/article_697.html

14 Oct 04           Liz Still

Now and again we receive phone calls from frustrated investors who have not been able to find the details of a particular unit trust fund. Invariably this is due to the fact that the funds in question turn out to be white label or third party funds.

The concept of white label or third party funds is not new, and was first introduced to overcome the barrier to entry of smaller asset management companies that did not have the administrative capacity or capitalization requirements to launch their unit trusts under their own name.

Third party funds come in different forms. According to Jurgen Boyd, Head of Collective Investments at the Financial Services Board, the concept was originally approved with the intention of helping asset management companies without the required size or administrative capacity to enter the market.

Early examples of companies that used the early third party models include Oasis and Allan Gray. Oasis Unit Trusts were originally housed with Norwich Asset Management and this arrangement was in place until Oasis had built up enough experience and administrative capacity to trade under their own license. In 1995 when Allan Gray applied to the Financial Services Board to launch unit trusts, the FSB insisted that a more experienced company, in this case Durban-based Marriott Asset Management took responsibility for the day-to-day management of Allan Gray's unit trust administration.

However over time the concept of third party funds has changed. Some companies who launch third party funds might have no intention of ever 'doing the full Monty,' and merely intend to extend their existing brand or alternatively used the third party framework to enable them to focus on their core skills.

Woolworths, for example launched two unit trusts in 1999. At the time the marketing director of Woolworths said that the company wished to 'extend their brand' and take advantage of their retail distribution outlets to enter the financial services industry. Woolworths outsource the management and distribution of their two unit trust funds to Nedcor Collective Investments.

When Piet Viljoen left Investec to start his own asset management company, Regarding Capital Management, he outsourced the administration of his unit trusts to M Cubed. He was thus able to enter the unit trust market without spending money on administration systems and staff.

But does the inconvenience of not being able to find a listed fund pale into insignificance when considering where the regulatory responsibility for the fund lies?

'Absolutely not', said Jurgen Boyd. 'Conditions under which third party funds operate are governed by the Collective Investment Schemes Act and are very clear. The regulatory responsibility, including compliance, for third party funds lies with the manager, or what used to be the unit trust management company,' he said.

'At the FSB we ensure that the manager treats the third party fund in exactly the same way as their own funds so that investors are protected' he said.

Di Turpin, Executive vice-Chairperson at the Association of Collective Investments, (ACI) said that managers of third party funds were obliged to become affiliate members of the ACI. 'Affiliate members are bound by the same rules with respect to the disclosure of fees, quarterly reporting and advertising, but they pay lower fees and have no voting rights,' she said.

Asked her view on what was fuelling the launch of more third party funds, she said that the increasing use of the unit trusts legislative framework might be an unintended consequence of FAIS legislation.

'Financial advisers are required to invest their clients' assets in a vehicle that is transparent, using administration that complies with the law,' she said. 'Many of the bigger private asset managers are finding that the unit trust vehicle is suitable for this purpose.'

Blue Horizon Global Asset Management is a newly launched company that has made use of the third party model. The company has seven funds, two administered by Metropolitan and five managed by Absa Fund Managers.

'We found that the process to register our third party funds with the Financial Services Board was quite rightly, extremely onerous,' said Doug Verley, Managing Director of Blue Horizons. 'Second or third tier financial advisors must realize that using the unit trust vehicle to break into the market is not a quick fix. 

'Third party companies like ours should have the capacity to grow their assets: a unit trust with assets under management of less than R5 million risks could be a waste of time for both investors and the administration company if the fund is forced to close,' he said.