Executive Summary
This analysis examines three key investment structures: offshore funds, managed accounts, and Swiss Actively Managed Certificates (AMCs). By exploring their frameworks, costs, and strategic applications, we provide investment professionals with practical insights for selecting optimal investment vehicles that align with their clients’ objectives and operational requirements.
Introduction
The choice of investment vehicle plays a fundamental role in determining investment success and operational effectiveness. Each structure – offshore funds, managed accounts, and Swiss AMCs – presents unique benefits and considerations that must be carefully evaluated. Through detailed examination of their operational characteristics, cost structures, and regulatory requirements, this report equips investment professionals with the knowledge needed to make informed decisions. Understanding these distinctions enables firms to enhance their service offerings while optimising operational efficiency in today’s complex financial landscape.
Summarised Comparative Analysis
| Aspect | Offshore Funds | Managed Accounts | Securitised Vehicles (AMCs) |
| Cost to Setup | High | Lower | Lower |
| Operational Cost | High | Variable, generally lower | Lower |
| Investor Onboarding | Extensive documentation | Direct ownership, simpler | No onboarding, market transaction access |
| Liquidity | Less efficient, monthly redemptions | Depends on the account terms | Up to daily liquidity |
| Transparency | Lower due to delayed NAV reporting | High, direct insight into performance | Integrated into existing accounts, high |
| Tax Efficiency | Jurisdiction-dependent advantages | Less ideal due to direct ownership | Jurisdiction-dependent, generally favorable |
| Initial Investment | High notional requirement | Depends on manager willingness | Lower entry point |
| Scalability | Medium, fixed administrative costs but burdensome onboarding | Limited, more admin for wealth advisors | High, easy integration and tracking |
Offshore Funds
Offshore funds are investment structures established outside national borders, mainly in financial centres such as the Cayman Islands, Bermuda and Luxembourg, and offer specific advantages for international investment management.
Key Features and Advantages of Offshore Funds
Tax and Regulatory Benefits: Offshore funds are typically domiciled in tax havens such as the Cayman Islands, Bermuda, or Luxembourg. While these jurisdictions offer potential tax benefits through their favourable regulatory environment, the actual tax benefits depend heavily on the investor’s home country regulations. Each investor must carefully assess their local tax implications, as the benefits vary significantly from one jurisdiction to another.
Scalability: One of the most compelling aspects of offshore funds is their cost-effective scalability. As fund assets grow, the fixed administrative costs become proportionately smaller, leading to improved expense ratios. This feature makes offshore funds particularly attractive for larger investments and growing portfolios.
Audited Track Record and Multiple Share Classes: Offshore funds maintain independently audited performance records, building trust through transparent evidence of returns. The ability to create multiple share classes allows fund managers to customise investment options to suit different investment sizes and specific investor requirements. This flexibility allows for tailored solutions while maintaining operational efficiency.
Challenges and Limitations of Offshore Funds
High Setup and Operational Costs: While offshore funds offer significant advantages, they require significant upfront capital to set up. Establishment costs include legal documentation, regulatory compliance and administrative infrastructure. These expenses, combined with ongoing operating costs, require careful consideration of long-term financial commitments.
Complex Investor Onboarding: The investor on-boarding process involves extensive due diligence and documentation requirements. This thorough but time-consuming process can create friction in the investment process, particularly for investors seeking a quick market entry or those unfamiliar with offshore structures.
Subscription and Redemption Processes: Fund operations require formal subscription and redemption forms, creating additional workflow requirements for both managers and investors.
Liquidity Constraints: The standard monthly redemption cycle and potential delays in NAV calculations can restrict investment flexibility. These structural constraints may pose challenges for investors requiring more immediate access to capital or those managing dynamic investment strategies.
Operational Implications for Investors and Managers
Strategic assessment
Investors and fund managers must weigh the potential benefits of offshore structures against the practical challenges of implementation. While these vehicles can offer operational efficiencies at scale and potential tax benefits, outcomes vary significantly depending on the investor’s jurisdiction and specific circumstances.
Implementation realities
The credibility provided by audited performance history and flexible share class structures enhances investor appeal. However, success requires careful evaluation of elevated set-up costs, detailed on-boarding procedures and inherent liquidity constraints. These factors require thorough analysis at the planning stage to ensure alignment with investment objectives and operational capabilities.
Managed Accounts
A managed account is a type of investment account that is owned by an individual investor and overseen by a hired professional money manager. Unlike collective investment structures, these accounts provide direct ownership of underlying securities, offering a personalised approach to investment management.
Key Features and Advantages of Managed Accounts
Cost-Effectiveness: The setup and operational costs of managed accounts typically fall below those of traditional offshore funds. This cost advantage makes them particularly attractive for investors seeking customised investment strategies without substantial initial costs.
Transparency: Managed accounts deliver exceptional transparency through direct insights. Investors can monitor individual security positions, track performance, and maintain clear visibility of their investment exposure. This transparency enables more precise alignment with investment goals and risk parameters.
Tax Considerations: While managed accounts offer operational advantages, their tax efficiency varies by jurisdiction. This is because the investments are held directly in the investor’s name, which can lead to different tax treatment compared to investments through a segregated vehicle.
Challenges and Limitations of Managed Accounts
Limited Liability: Unlike structured investment vehicles, managed accounts lack inherent liability protection. Investors maintain direct exposure to investment risks and obligations, contrasting with fund structures that provide built-in legal safeguards through their organisational framework.
Scalability for Wealth Advisors: Wealth advisors managing multiple portfolios face significant operational challenges. Individual account management requires personalised attention to each client’s needs, creating resource demands that can impact service delivery efficiency and limit practice growth.
Performance Tracking and Consistency: Another challenge with managed accounts is the potential for tracking error between different accounts managed by the same advisor or manager. This can make it difficult to maintain a consistent investment strategy across all client accounts and to present a unified track record.
Operational Implications for Investors and Managers
Management considerations
Investment managers often evaluate account size against operational requirements when accepting managed accounts. Increased administrative responsibilities and the need for strategy personalisation may affect their willingness to manage smaller portfolios, potentially limiting access for certain investors.
Resource requirements
For wealth advisers serving a diverse client base, managing multiple individual accounts creates significant administrative demands. Each account requires dedicated monitoring, documentation and strategic attention, which can challenge firms’ ability to scale their services efficiently while maintaining personalised investment solutions.
Securitised Vehicles: Swiss Actively Managed Certificates (AMCs)
Swiss AMCs represent innovative financial instruments that transform investment strategies into tradable securities. These structured products enable investors to access customised investment approaches through familiar securities frameworks, combining sophisticated strategy implementation with operational simplicity.
Key Features and Advantages of Swiss Actively Managed Certificates
Reduced Setup and Operational Costs: Swiss AMCs stand out for their streamlined setup and operational requirements. The reduced cost structure makes these vehicles accessible across the investment spectrum, from individual investors to institutional clients, enabling rapid strategy deployment at competitive expense levels.
Ease of Access and Investment: Unlike traditional investment structures requiring extensive documentation, AMCs offer straightforward market access. Investors can participate through existing brokerage relationships, eliminating complex onboarding procedures and simplifying the investment process.
Lower Initial Requirements: AMCs feature lower initial investment thresholds compared to traditional vehicles, broadening their accessibility. This structure maintains favorable expense ratios even for smaller investments, while offering potential liquidity options that enhance portfolio management flexibility.
Simplified Tracking and Monitoring: These certificates seamlessly integrate into standard investment accounts, appearing alongside traditional securities in regular statements. This integration provides transparent performance tracking and simplified portfolio monitoring, enhancing the overall investment experience.
Challenges and Considerations of AMC Securitised Vehicles
Market Dynamics
Swiss AMCs’ effectiveness varies across different regulatory environments and market conditions. Investment professionals must carefully evaluate these factors when determining the suitability of AMCs for specific investment strategies and client objectives.
Risk Management
A key consideration in AMC structures involves counterparty risk, particularly when banks serve as issuers. This exposure to issuer creditworthiness requires careful evaluation and risk assessment. Implementation of off-balance sheet issuance vehicles provides an important risk mitigation strategy, creating separation between the AMC and the issuing institution’s balance sheet.
Comparative Advantages of Offshore Funds vs Managed Accounts vs AMC Securitised Vehicles
Cost Structure
AMCs demonstrate notable cost advantages through reduced setup and operational requirements compared to offshore funds’ substantial establishment costs. While managed accounts offer moderate setup expenses, AMCs maintain superior long-term cost efficiency, particularly for smaller investment amounts.
Operational Framework
The streamlined market access of AMCs, utilising existing brokerage infrastructure, creates significant operational advantages. This simplicity contrasts with offshore funds’ complex documentation requirements and managed accounts’ individualised portfolio management demands, offering a more efficient investment process.
Investment Parameters
AMCs provide enhanced accessibility through lower investment minimums and liquidity options. These features offer greater flexibility compared to offshore funds’ typically restricted redemption schedules and managed accounts’ individual portfolio constraints, enabling more dynamic investment management.
Conclusion
Investment Vehicle Selection
Each investment structure serves distinct market needs and strategic objectives. Offshore funds maintain their position for jurisdiction-specific advantages, despite operational complexities. Managed accounts deliver personalised portfolio control for investors prioritising direct oversight. Swiss AMCs emerge as an efficient solution, combining operational simplicity with cost-effective implementation.
Market Evolution
The dynamic investment landscape demands careful evaluation of these vehicles’ strengths and limitations. Success requires aligning structure selection with specific investment mandates, operational requirements, and client objectives. As markets evolve, the ability to leverage appropriate investment vehicles becomes increasingly critical for competitive advantage.
As the investment landscape continues to evolve, leveraging platforms like FundFront to navigate these complexities will be key to crafting tailored, efficient investment solutions that meet the changing demands of investors and the market at large.
FundFront can help you create securitised products and fund structures, or we can work with you to develop your own white-label technology solutions to manage your investment portfolios. Contact our team to explore how we can improve your investment operations.
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Disclaimer
FundFront provides operational and technological solutions for fund structuring, securitisation and management. We do not provide legal, tax or financial advice. We recommend that you consult with professional legal or financial advisors to ensure compliance and appropriateness for your specific situation.
