Merrill Lynch Investment Solutions: Merrill Lynch International

Winner: Best Ucits platform; Shortlist: Best overall investment platform

Merrill Lynch Investment Solutions’s (MILS) Luxembourg-domiciled Ucits platform is designed to attract tier-one hedge fund managers. Its success is based on a strong distribution network.

The Luxembourg Sicav structure ensures the assets of each sub-fund on the platform are individually ring-fenced. For investors this means each sub-fund is regarded as a separate entity. The Ucits wrapper is the acknowledged quality brand of the European Union.

The platform provides access to Ucits-compliant versions of complex strategies such as event driven, multi-strategy and commodity trading advisers (CTA).

Since launched in November 2007, the platform has attracted some big-name hedge funds such as Och Ziff, York Capital, Columbus Circles Investors, GLG Partners, Marshall Wace, Theorema, Boyer Allan, Graham Capital, AQR, Perella Weinberg, TT International and Zweig-DiMenna.

“Bank of America Merrill Lynch [BAML] was one of the first to identify the potential to create absolute return strategies managed by external hedge fund managers within the Ucits wrapper when we created the Merrill Lynch Investment Solutions Ucits platform in 2007,” notes Miriam Muller, director of the company’s fund platform group.

“We are listening to investors in the regulated world who want to access alternative absolute return and are asking where they can source that,” adds Eric Personne, BAML’s head of Europe, the Middle East and Africa (EMEA) fund solutions. “We are expanding the client base for hedge funds.”

While clients tend to be European-based, the majority of managers are located in the US, with fewer than 40% of them in Europe. “The majority of managers with a successful long-term investment history to their name are based in the US,” explains Personne. “This track record is important to us and our investors.”

By tapping into European investors, the platform can bring value to US managers in terms of distribution. “We are giving managers access to potential new sources of capital and allowing them to diversify their product offering,” says Personne.

“Our fundraising approach provides true investor diversification, with assets raised from onshore European investors who could not previously access the offshore versions of the Ucits funds offered,” states Personne. The platform has amassed $1.8 billion in assets under management (AUM).

Opening the platform to retail investors is on the agenda. “We are actively considering retail,” reveals Personne. “But servicing retail investors is more complex. We will do it when the market is ready.”

Success stems from the platform’s focus on tier-one hedge fund managers, according to Personne. The platform has succeeded in attracting top managers thanks to the existing presence of other big names on the platform.

In January, AQR Capital Management added a fund to the platform, while Perella Weinberg followed suit in March. TT International added its financials fund in June and Westchester put a Ucits-compliant version of its merger arbitrage sub-fund on the platform in July. There are plans to add three more managers by the end of 2011 to the current 14.

“When you focus on top-tier managers you are more likely to attract managers who want to be on a platform in the company of people they consider are operating to the highest standards,” says Personne. “There is a sentiment that you want to be on a platform where everybody is operating to the highest standards.”

The process of adapting a hedge fund to become Ucits compliant can be complex. “All the strategies offered on the MLIS platform have been structured from the bottom up and are intrinsically compliant with the Ucits rules,” adds Muller. Not all hedge fund strategies can be replicated within Ucits rules.

“We have to examine each strategy very closely to make sure it meets the rules and there is a lot of consultation with each potential manager, prior to awarding a place on the platform,” she says. The Luxembourg Sicav structure ensures the assets of each sub-fund on the platform are individually ring-fenced.

“For MLIS quality comes first, ahead of the number of managers or total AUM, as we believe there is no shortcut towards achieving long-term recognition,” states Personne. “Our ultimate ambition is to become the reference brand name in the field of alternative Ucits funds.”

A range of strategies is available on the platform. These include market neutral; event driven; European long/short; healthcare, Asia-Pacific long/short; US long/short; commodity trading advisers; multi-strategy; sustainable resources; merger arbitration; financials; global emerging credit; systematic currency programme; distressed investments; commodity focus equity long/short. MLIS plans to add quant macro and foreign exchange to the list.

The platform charges no additional fees to investors. Fund costs are covered by a 40 basis point (bp) flat fee that includes administration, audit, legal, passporting and directors’ fees.

“We expect the alternative investment industry and the traditional asset management industry to change significantly in the coming ten years,” explains Muller. “We trust MLIS can bring a significant added value to the marketplace, to become a hub connecting experienced alternative managers and local distributors and investors in search of investment solutions operating to the highest standards of regulation and supervision by independent parties.”

Related reading
Ucits special report: Myth and reality
Sponsored forum: Hedge funds see Ucits wrappers as way to new sources of capital

Platform facts
Launched: November 2007
Structure: a Ucits III-compliant Luxembourg Sicav (Merrill Lynch Investment Solutions), authorised by the Luxembourg regulator, Commission de Surveillance du Secteur Financier (CSSF)
Liquidity: daily and weekly (no managed accounts are available on the platform)
Assets under management: $1.8 billion (at September 2011)
Fees: 40bp
Information provided to investors: weekly and monthly factsheets, audited financial statements, information on request
Administrator: Société Générale Securities Services Luxembourg
Custodian: Société Générale Bank and Trust Luxembourg
Sponsor: Merrill Lynch International
Transfer agent: European Fund Services

2010: Ninth European Fund of Hedge Funds Awards 2010
Winner: Best Ucits platform