The Alternative Investment Management Association (AIMA), the global industry body representing alternative asset managers, has published a new guide about setting up and managing a liquid alternative fund.

The AIMA Guide to Liquid Alternative Funds summarises a range of issues that hedge fund firms and other asset managers face in setting up a UCITS fund in Europe or a mutual fund registered under the Investment Company Act of 1940 in the US, known as a ’40 Act fund.

The guide outlines practical considerations for managers wishing to establish liquid alternative funds, takes account of major regulatory and tax developments, and addresses some of the different requirements and practices affecting funds established in Ireland, Luxembourg and the US, among the most common domiciles for liquid alternative funds.

A range of issues are covered in the guide including investment strategy restrictions, liquidity, operational and governance matters, distribution, tax and financial reporting, the role of service providers and revenue streams and costs.

The guide, which directly compares UCITS and ’40 Act fund structures and requirements, is published at a time of steady growth in liquid alternative funds in Europe and the US. A survey published earlier this year by AIMA, the MFA and KPMG found that roughly one-in-four managers planned to launch at least one alternative UCITS fund over the next five years, while about 15% of managers said they planned to launch at least one ’40 Act fund by 2020.

Jack Inglis, CEO of AIMA, said: “Investment managers that are used to the regulatory environment of private funds should expect to face new operational and regulatory challenges in a liquid alternative fund. But they are also likely to find significant new growth opportunities at a time when many individual investors, pension funds and other institutional investors are looking for ways to increase the liquidity and risk-adjusted performance of their portfolios.”

The guide was produced by a working group of AIMA member firms who sit on the association’s Sound Practices Committee. It is sponsored by J.P. Morgan and KPMG LLP.

Massimo Greco, Head of Europe Funds, J.P. Morgan Asset Management, said: “J.P. Morgan is pleased to co-sponsor the AIMA Guide to Liquid Alternative Funds. The availability of absolute return fund products in mutual fund format offers a larger group of our clients important additional tools with which to manage their investment portfolios.”   

Sean McKee, US Leader of Public Investment Management, KPMG LLP, said: “As investment advisers enter the world of products that entail greater regulatory burdens, this guide will be of great benefit to them. This guide is filled with information that will assist those managers in understanding the various regulatory and tax regimes as well as the resulting governance and operational considerations. It is a must-read for any investment adviser who is new to the world of liquid alternative funds or considering offering such solutions.”

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Note to editors

The full AIMA Guide to Liquid Alternative Funds is available only to AIMA member firms. An executive summary is available here.