2023 Letter to Stakeholders
2 January 2024
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To say we have been busy this past year would be an understatement! We are excited to detail for you our progress at Eschler. This letter to our stakeholders serves to outline how we add value with our focused business model; what it means to partner with Eschler; the notable highlights from 2023; and our initiatives for the coming year.
Eschler has experienced significant growth this year with revenue estimated to be up 68% in the fiscal year to March 2024 (9 months to Dec 31 annualised). Assets under management were GBP 344 million (USD 438 million) as of 30 September 2023. We onboarded five new investment managers, launched multiple funds, upgraded our fund service providers, provided new opportunities for our fund managers such as alpha capture and strengthened our institutional potential in the U.S. In the coming year, our goals include strengthening our internal compliance recordkeeping, building out our operational platforms, investing in distribution and evaluating multi-manager concepts that leverage our emerging manager talent base.
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Financial Performance
Last April, Eschler spun out its internally managed hedge fund into Sorengo Partners Ltd, now an independent single-strategy boutique. With Sorengo now off on its own adventure (more later), Eschler is now a growing platform business singularly focused on serving the regulatory, operational, and business needs of independent fund managers.
Eschler’s business model enjoys attractive attributes such as recurring monthly billing, increasing client diversification and low annual churn. Below is Eschler’s pro forma revenue and growth, excluding all fees from the hedge fund (2024 is estimated).
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* Estimate based on annualising 9 months to December 31st 2023
Client Overview
Eschler’s clients include (i) a balance of hedge funds and long only boutiques who partner with us on a long-term, open-ended basis (65% of total clients as of year-end 2023); (ii) start-up hedge funds who contract with us for short-term regulatory hosting, generally 8-12 months, while seeking their own FCA authorisation (10%); and (iii) advisors of all sorts who need to be regulated in the UK but do not exercise discretion over client portfolios (25%).
We aspire toward long-term, mutually beneficial partnerships with our fund managers and expect the category to dominate activity in the future. Having said that, short-term assignments can be more lucrative and lead to referrals. This is why, in the second category, we are thrilled to selectively participate in the right opportunities with the right people. The third category is a catch all for a broad spectrum of activities including research, third-party marketing, local UK branches of foreign companies etc. This is a huge addressable market where we can afford to be selective.
In terms of trends, we are seeing some turnover but overall net growth in our longer-term manager engagements; an uptick in well-resourced manager launches seeking a temporary hosting solution; and growth in the broader advisor category.
Here is a summary of our client growth and composition:
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* Estimated
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Eschler’s purpose is to empower independent fund managers with a core offering in regulatory hosting, fund infrastructure and operational support. We are the nexus between entrepreneurial investing talent and its expression within a regulated business that is permitted to manage or advise third party professional capital.
Over the past five years we have helped nearly two dozen fund managers with varying objectives and needs create a business solution that is ready for prime time.
One of our first clients (2018) was Christian Putz at ARR Investment Partners, a native of Austria with significant trading experience in Eastern Europe. We helped Christian set up a compliant investment management business in the U.K. using separately managed accounts. We have continued to support ARR with its plans for expansion on the back of exceptional results.
In 2020/21 we helped Sloane Robinson LLP, a well-known hedge fund management company, downsize and restructure by providing a turnkey regulatory and operational solution for the ongoing partners. This long-term partnership continues to serve both parties well.
This past year we assisted Leila Kardouche and Rufus Frazier with the launch of their new firm, Variis Partners LLP, a majority female-owned team with a strong pedigree and a distinctive approach to investing in emerging markets. Despite this being a short-term assignment, we are thrilled by the association and who knows, it could always lead to further collaboration in the future!
Our Culture
Our culture puts the customer first, with the objectives of crisp execution, adherence to regulatory excellence and shared benefits from scale. As a fund manager myself, I have trodden the same path as our managers and seek to understand their needs and provide advice that goes well beyond our core operational competencies. You can read about our story here.
Here are several traits that characterise our approach as a multi-manager firm:
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Our portfolio managers are the star of the show. They are entrepreneurial owner/operators with significant skin in the game and maximum commercial and investment independence. They make their own decisions, subject to rigorously adhering to Eschler’s regulatory policies. “Star fund managers” may have a bad rap these days in the City, but ultimately, we strongly believe that concentrated decision making will remain a prerequisite for outstanding results in active management.​
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Our investment strategies are distinctive and unconstrained while focused on traditional asset classes, liquid markets, and market-based pricing. We are intentionally not focused on private markets.
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Our fees for managing portfolios are clear and transparent, incentivizing strong results which align the portfolio manager with clients. At odds with the broader UK fund management industry, we believe in properly structured performance fees, thereby attracting ambitious investing talent looking to start from the ground up. On the other hand, we intentionally avoid open-ended pass-through fees and double-layered fees so common amongst agents in the alternatives industry.
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Our clients, on balance, are asset owners with a long-term orientation who accept that investment results are not a straight line. We tend to repel agents just looking for a smooth ride.
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Review of 2023
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Over the course of the year, we evaluated nearly 50 fund managers and onboarded five. While we recognise that many potential clients will ultimately not be the right fit, we welcome all conversations and enjoy providing advice.
In May we launched a promising partnership allowing our fund managers to contribute ideas to Marshall Wace’s buy-side TOPS alpha capture program. This initiative provides direct financial value to our fund managers, with the potential for more material incremental earnings depending on results.
In May and September, respectively, we launched two funds on our Cayman platform, Tourbillon and MGE Global Equity. Tourbillon is advised by Ben Beneche and Ramesh Narayanaswamy at Tourbillon Investment Management. The strategy focuses on franchise businesses with fulcrum assets, symbiotic loops, and outlier management teams. MGE Global Equity is advised by Oliver Mihaljevic at MGE Capital Management LLP who focuses on special situations with wide price/value dislocations.
In August we welcomed INDOS Financial as depo-lite provider to Eschler’s offshore funds subject to UK AIFMD. INDOS will ensure ongoing safekeeping and verification of fund assets in-line with regulatory requirements.
In November we were pleased to welcome Kurt Koeplin and the team at NAV Consulting as Eschler’s new fund administrator and transfer agent, replacing Apex from January 2024. We would especially like to thank Ruth Kelly and Ingrid O’Flaherty at Apex for their fantastic help over the years.
Finally, in December 2023, Sorengo Partners became the first Eschler advisor to join Hurricane Capital’s manager platform (https://www.hurricanecapital.io/), combining Eschler’s regulatory expertise in the U.K. with Hurricane’s complementary operational capabilities in the U.S. Hurricane’s fund managers sub-advise portfolios for Hurricane but retain their independence. They benefit from Hurricane’s top tier infrastructure across custody, trading, separately managed accounts, order management, fund administration and global distribution.
Working together carries considerable potential for both Eschler and Hurricane. Eschler evaluates dozens of managers in the UK and Europe every year, a small minority of which will meet Hurricane’s demanding emerging manager criteria. Equally, as Hurricane grows in the UK and Europe there is scope to leverage Eschler’s regulatory services. The collaboration has potential to deliver value to both parties and our respective clients.
Regulatory Landscape
In 2023 we saw increased interaction with regulators on both sides of the Atlantic. This is inevitable and expected as the scope of our activity expands. Our viability as a reliable partner depends on proactively meeting numerous regulatory requirements. For example, when in doubt we proactively self-report technical breaches. We are also planning a thorough review of our internal records in the coming year. In April, we successfully resolved a routine SEC examination. The Financial Conduct Authority here in the UK is also taking a greater interest in multi-manager business models such as Eschler and interaction picked up as the year progressed. We expect more frequent information requests which will require more detailed input from our managers than in the past. Despite some inherent decentralisation in parts of our business, our “one firm” regulatory approach and investment in compliance resources ensures we are ready to respond to enquiries.
Goals for 2024
Our reinvestment priorities for the coming year target more turnkey operational solutions and growth optionality. Goals for the coming year, in order of priority, include:
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Undertaking a full audit of our internal compliance processes to ensure our internal recordkeeping is consistent with regulator expectations.
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Implementing an institutional middle-, back-office, SMA and outsourced trading platform including leveraging Hurricane Capital’s strengths in those areas for Eschler managers who meet Hurricane’s stringent criteria.
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Investing in distribution resources to help identify and structure partnerships with more aligned incentives, such as revenue shares and AUM-based pricing, to better leverage our full operational suite.
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Evaluating a proprietary multi-manager solution directed at institutional allocators seeking diversified exposure to custom portfolios of Eschler’s talented emerging managers.
In Closing
We onboarded our first manager at the end of 2018 to share operational costs. Little did we know that five years later, Eschler would be serving 20 independent fund management and advisory firms. Along the way, we have been lucky to make more new friends than we could have imagined. We encourage aspiring financial entrepreneurs in the UK focused on professional clients to get in touch. We promise to provide honest advice based on hard-won experience and competitive solutions that avoid unnecessary costs.
We would like to thank MITIMCo for featuring Eschler on their list of emerging manager service providers. Mark Veevers and the team at Maia, our order management software provider, have been working to centralise trading and holdings data from all our portfolios and we appreciate their ongoing effort. Thanks go to Stephen Roberts, our compliance consultant, and Richard Rothwell, our Non-Executive Advisor, for ensuring we stay up-to-speed with fast-moving regulatory developments, as well as to all our other service providers. Kristin Girald, former head of global research and member of the executive committee at Prime Bucholz, provided valuable advice throughout the year. We are excited to continue working with Kristin as Independent Advisor on an ongoing basis.
Not least, we would like to thank each of our fund managers and advisors for your continued confidence as well as for your valuable referrals which helped us achieve a great result in 2023.
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Our goal has been to share the benefits of greater scale with our fund managers, increasing retention and referrals. This is working and we’re convinced our small but growing business network is now more valuable than the sum of its parts. Judging by the quality and breadth of our pipeline, the business is set for significant growth.
Are you an aspiring independent fund manager with experience, grit and working capital looking for a business partner? Or perhaps you know a talented fund manager who might benefit from Eschler’s services? Maybe you are interested in gaining customised, diversified exposure to emerging manager talent without a double layer of fees or pass through costs? Or, having read this letter, do any business opportunities come to mind that we might discuss? If so, we are all ears for new ideas and encourage you, our valued stakeholders, to get in touch.
