Discover what sets leading Regulatory Incubator apart
Sturgeon Ventures, the leading regulatory incubator, and regulatory host in the Wholesale Institutional Financial Services Industry – what sets Sturgeon apart from the newer competitors?
A Sturgeon fish starts the size of a mustard seed, grows to 12 feet in length, weighs up to a tonne, lives for 100+ years – an amazing metaphor for growth. Sturgeon fish are bottom feeders, their cat-like whiskers taste their food before they bite, the ultimate due diligence. Sturgeon are one of the oldest fish species in the world, their evolution traceable to the early Triassic Period nearly 250 million years ago – remaining relatively unchanged since the earliest fossil records – we believe in long term authentic relationships; we are also flexible and nimble, another Sturgeon characteristic, Sturgeon fish give birth in both fresh and salty waters; and ultimately a Sturgeon female fish lays its eggs after incubating them to grow into adaptable, creatures who survive against all odds.
The Appointed Representative regime
The appointed representatives (AR) regime is a longstanding and widely used feature of UK financial services regulation. It was first established by the Financial Services Act 1986 and was mainly used by IFAs for marketing and giving advice to ordinary retail clients. Since then, it has been adapted and applied to a broader range of financial services activity enabling Sturgeon Ventures to pioneer the Wholesale (Institutional) industry use of the UK AR.
Using the AR regime and where individuals are FCA approved persons, Sturgeon Ventures incubates business ventures; from launching a venture fund, hedge fund or real estate fund to a long only fund, some with an embedded social impact, or to managing a segregated account for a professional client.
As a leading regulatory incubator, Sturgeon enables portfolio managers to sit within the firm itself as certified persons (within SM&CR Regime) under either a MiFID license, delegated by an offshore manager, or under our AIFM license, as a UK closed ended fund. Certified persons can also market funds whilst being certified without the need of an AR. Sturgeon’s branding of the use of the Wholesale Appointed Representative Firm is so powerful that many only want the AR firm not the incubated model. The AR can market the fund or strategy in the UK under the AR regime, while marketing overseas must be with the evidence of a local Chaperone Agreement, an exemption or with a Tied Agent firm with our European Partner (the equivalent of an AR to market into Europe). Sturgeon Ventures is a full registered Investment Advisor with the SEC, so where we incubate an Institutional fund manager, it can market a fund in the USA to accredited investors or the strategy for a managed account.
Both the FCA and the Treasury recently published reviews on the AR sector and there seemed to be confusion between what constitutes “hosting” versus “incubation”. Sturgeon began incubating start-ups in financial services in the year 2000 where for the first time we had FCA (previously FSA) approved persons within Sturgeon. Prior to the year 2000, only firms were approved by the Securities Financial Authority (SFA).
In 2003, Sturgeon Ventures incubated a team in insurance corporate finance, and we discovered the AR regime whilst advising on the merger of two insurance companies. Sturgeon went on to advise a firm on how to use the AR regime in the Wholesale Institutional Industry and onboarded our own first Institutional/Wholesale AR firm in 2005. That first AR firm, like many others, went on to be directly authorised but stayed with Sturgeon for ongoing compliance and in 2022 are spinning out a team back to being our AR firm again!
Benefits of Regulatory Incubation
Also at that time, we reached out to a firm who were incubating a few managers to see if they would host a sister company, and of course we demonstrated our AR Firm model. And so began the growth of the parallel competitive world as Sturgeon Ventures educated the legal and prime broker professions on the use of the newly formed Wholesale AR firms and the benefits of Regulatory Hosting and Regulatory Incubation. For their clients this facilitated a faster route to market, a means of proving that their investment strategy worked and a way of building a performance track record and Assets Under Management (AUM).
What sets us apart as the leading Regulatory Incubator?
Since Sturgeon Ventures created the wholesale use of the AR Firm and has been incubating Institutional Financial Services start-ups since 2000, many newer entrants have joined the market; many that came to be AR Firms with Sturgeon Ventures that simply loved the model and copied it.
Many of these competitors have been taken over by larger firms or PE-backed businesses, some even US Firms, and in our opinion, they have lost the personal touch that entrepreneurs need in their “Ventures”. Sturgeon continues to take a hands-on approach, and we believe that we are the only Regulatory Incubator/Hosting Firm where in our closed ended funds, we have women on the investment committees to ensure we hit both the S and the G of ESG as many new managers strive to have this within their operational teams. Many of our competitors claim that they are innovative because they have compliance technology; Sturgeon Ventures has never dwelled on this but has been powered for more than a decade by a bespoke version of ViClarity, our inhouse technology, designed to meet the needs of our hosted and incubated ventures and the underlying clients.
The FCA has made it quite clear, albeit many of our competitors still don’t make the distinction, that a New Venture, e.g., the project of the overseas company setting up in London, or the manager leaving a bulge bracket firm, is not the client of the regulatory incubator or the host. Rather they are a Venture within the incubator or host Principal Firm and its AR Firm, the client being the Fund, or the corporate finance transaction. Sturgeon Ventures hosts or incubates the Venture to look after the client; we provide the Regulatory Solution whilst partnering with Institutional Professionals to jointly deliver Financial Services for a client. We know that some of our competitors win by competing on price, however Sturgeon Ventures recognises that to deliver a premium regulatory framework for Institutional clients and their investors, experienced and professional teams are needed inhouse to support both AR and Non-AR Ventures. So, whilst we are not the cheapest, we know we are amongst the most professional and most experienced, with an emphasis of quality over quantity. We have operated as a hybrid working model since inception in 1998 and with a heart for ESG matters, we have been a signatory of the UN PRI for several years and continue to be active members of industry ESG working parties.
Sturgeon Ventures monitors the growth of the competitive landscape, and charts new entrants as they emerge. We currently follow the quarterly changes in over 70 principal firms. In the HM Treasury Report in December 2021 The Appointed Representative Call for Evidence https://www.gov.uk/government/consultations/the-appointed-representatives-regime-call-for-evidence , it was highlighted in 2.22 that Regulatory Incubation has been a boost for the UK Economy – “Where used appropriately, this incubator model can help firms to understand the regulatory environment and compliance needs before going on to apply for FCA authorisation. This can help support effective competition and innovation, and the incubator model has been particularly valuable in the Fintech sector, where the UK has become a market leader.”
The FCA and Treasury Review of the Appointed Representative regime
The Team at Sturgeon Ventures are very excited to see the final outcome of the FCA and the Treasury’s Review of the Regime later this summer 2022. We believe it can only enhance the use of the Wholesale/Institutional AR Firm being used as a Regulatory Hosting Regime, enabling asset managers with experienced professionals to incubate emerging managers who have spun out of larger firms or those overseas firms looking to step into the United Kingdom’s Financial Services industry. Despite BREXIT – the UK’s Financial Services industry continues to thrive. This year saw Sturgeon add a Digital Assets Fund to its risk tolerance with another crypto fund due to launch in September. It is also worth mentioning that when the marketplace struggled to get PI insurance for this asset class, Sturgeon was able to secure this with a reputable Lloyds broker at reasonable rates. A testament to Sturgeon’s standing within the industry!
A cautionary note to end on: it is important when choosing your Regulatory Host/Regulatory Incubator to ensure that the team have relevant experience in your strategy, as the FCA is reviewing the experience of the teams within Regulatory Hosting and or Regulatory Incubators. Speak to past and current incubatees on their experiences – you do not want to launch, and then have to move………or not feel that you have that mentee at hand.
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Lastly, if I can raise awareness for a small event we are sponsoring, raising funds and education for the outstanding work of the RNLI especially their work on the River Thames.
On the 1st July I will be walking the Thames Path to raise money for a great cause. Please sponsor me, as little as £5.00 makes a difference. Find out more about the challenge, and there is a donation page here.