Global Hub & Spoke℠ System
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The Next Generation Solution
The Global Hub and Spoke℠ System involves the separation of the portfolio components of an investment fund from its administration and distribution components. Once separated, other existing or new investment funds can likewise separate investment components and invest through that same investment portfolio. This single investment portfolio is referred to as a GFX Portfolio, and the creation and operation of a GFX Portfolio together with the Funds investing through it is referred to as the Global Hub and Spoke℠ System or the GFX System.
ECONOMIES OF SCALE
As additional Funds invest through that portfolio, the expense ratio becomes lower (i) as break-points in the management and safekeeping asset-based fee schedules are reached, and (ii) as transaction-based expenses (e.g., trading, settlement and holding expenses) are spread over a greater number of Funds. As a result, the aggregate expenses of each Fund are less than they would be if it operated as a traditional investment fund.
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Legal & Regulatory Considerations
The general legal, fiscal and regulatory issues underlying the GFX System were presented to the relevant authorities in the U.S., UK, Luxembourg and Ireland. The authorities in the UK, Luxembourg and Ireland confirmed that investment funds organized in those jurisdictions and operating as UCITS could participate in the GFX System. GFX believes that the issues raised in the U.S. have also been adequately addressed. However, as with other fund structures – including traditional ones – no assurance can be given that, in the context of any specific application or filing, additional issues may not arise which would lead the applicable regulatory or fiscal authority to deny, reject or significantly modify that application or filing.
Cross Border/Cross Market Entry
The GFX System permits an asset management firm to create new Funds customized for new markets that from fund launch would have critical mass (through the assets from other Funds being managed through that GFX Portfolio), and a performance track record (i.e., the track record of that GFX Portfolio adjusted for expenses). Therefore, the GFX System is the most effective means for a Fund sponsor to expand across borders and across national market segments.