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Hedge Funds India Wells Fargo acquires hedge fund administrator

Posted Sep.21, 2011 under Hedge Fund Administration

Wells Fargo is to acquire hedge fund administration specialist LaCrosse Global Fund Services.

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Wells Fargo has entered the hedge fund administration and middle office outsourcing business with the acquisition of LaCrosse Global Fund Services, a business unit of Cargill.

LaCrosse provides traditional fund administration services, operational support, derivatives processing, bank debt processing and cash/collateral management for hedge fund clients.

Lacrosse was formerly the operations and administration arm of Cargill Global Capital Markets. In 2003, Cargill turned its trading and investment business into an independently managed subsidiary known as Black River Asset Management. LaCrosse supported Black River’s operations and was spun off as a provider of middle and back office services to hedge funds in 2007.

LaCrosse’s management, service teams and systems, led by co-CEOs Stuart Feffer and Christopher Kundro, will be transferred to Wells Fargo as part of the transaction. The company promised “complete continuity of services” for existing clients. Wells Fargo will also continue to maintain LaCrosse’s offices in New York, Minneapolis, London, Dublin, Singapore, Buenos Aires and Jersey.

“This integration provides us with a huge opportunity to leverage our strong corporate trust market reputation with LaCrosse’s experience and expertise, and offers our clients a full suite of hedge fund administration services,” said Doc Walther, head of structured product services at Wells Fargo.

Following completion of the acquisition, LaCrosse clients will be able to make use of the services offered by Wells Fargo, including custody, cash management, trust, paying agent, and other related banking services.

Barclays Capital served as an advisor to Cargill in this transaction, while the structured product services division within Wells Fargo corporate trust services sponsored the deal. The acquisition is still awaiting regulatory approval in several jurisdictions.

Source: ICFA

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Multiple Masters/Multiple Feeders

Posted Sep.16, 2011 under Fund Accounting

As a feeder is a partnership that can invest in any investment that it chooses, it’s not limited to invest only in a single master fund. In fact, a feeder can invest in any number of master funds. The subsequent P&L allocations of the master fund back to the feeder may become more difficult to determine. For example, if a feeder is invested in three master funds, with different ownership percentages in each, and earns realized gains from each, determining the amount of realized gain to record for
both book and tax may become a bit more complicated.
On the other hand (and/or at the same time), a master may have more than two feeders invest in it. Any particular master fund may have any number of investee feeders. The equation to determine allocation of P&L now must be extended to include all the feeders, each which may have different investment classes and attributes to consider (see Hot Issues section above).

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Hot Issues—”Pro Rata” and “Look Through”

Posted Sep.16, 2011 under Fund Accounting

When trying to determine how to allocate P&L to the feeders invested
in the master, it’s pretty clear-cut when all investors can receive all P&L.
For economic purposes, you can just take the percentage that the feeders
own of the master fund, and for tax purposes, you can just use an
aggregate allocation method.

But when there’s hot issue gains at the master, allocation to the
feeders can become a little more intricate. Essentially, there are three
main methods for allocating hot issue P&L to the feeders: the “pro rata”
by feeder method, the “look through investment” method, and the
“look through capital” method.

The “pro rata” by feeder method allocates hot issue income the
same as all other income, i.e. no distinction is made. This is common
practice for many firms because either 1) there’s not a material difference
in the proportion of hot issue capital coming from each feeder; 2) there’s
not a material difference in the amount of hot issue income generated
in the master, or 3) it’s too difficult to implement.
The “look through investment” method drills down into each
investor’s capital available to receive hot issue income. This is best
understood by a simple example:

Hedge Funds India

Notice that although each feeder invested 50% each, hot issue allocation is based on “looking through” to each investor’s capital balance and realigning them to 100%. This method would produce a 60/40 split of hot issue income between the two feeders.

A variation of this is called the “look through capital” method. The
main difference occurs when the feeders do not invest 100% into the master, but actually keep some capital down at the feeder, best viewed by an example:

 

Hedge Funds India

Notice here that the Offshore feeder only invested 50% of its capital, and some of the capital that remained behind is available to participate in hot issue income unrelated to the master fund. In that case, it really is a 75/25 split, and could be a reasonable way for how the master should split hot issue income. In summary, the main things to recognize is whether hot issue income is going to be split by feeder or by investor ratios, and whether the feeders invest 100% in the master.

 

 

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