The Venetian island of Murano is home to furnaces that have, for more than a millennium, forged hand-crafted glassware that graces many of the world’s most esteemed tables. The glass theme continues with information provider Murano’s latest innovation, Chromic. This term describes a process for turning translucent glass opaque, which hints at the business model. Tinted windows allow the driver of a car to see outside but prevent onlookers from seeing inside; similarly, the managers riding in Murano’s limousine can view investors who express potential interest in funds with appropriate characteristics – but investors will not have sight of funds unless managers choose to contact them.
Murano has always operated with this type of model, and never discloses the names of the many managers it works with to its 30,000-strong network of investors. Murano has always asserted the merits of allowing managers to keep complete control of information and communication flows. Now the advent of AIFMD may also create a regulatory incentive for this modus operandi. Murano is in the midst of releasing the “Chromic Reverse Solicitation Process” (Chromic RSP) which is intended to come under the aegis of individual countries’ reverse solicitation regimes.
The idea behind Chromic is very simple and can work in two ways: in the first instance, an investor may ask a service provider (that are non-agents) if they know of any funds that fit a certain criteria. The service provider will then send an email to the investor with a link to click if they desire to be ‘solicited.’ If the link is clicked by that investor, an email is then drafted on the investor’s behalf and sent to the fund manager. It is up to the fund manager to then respond to the enquiry.
The second instance is where an investor would like to know all or certain categories of funds that match the criteria. The service provider can then instruct the investor to use Chromic to send enquiries to a multitude of funds.
The key to Chromic is the definition of ‘reverse solicitation.’ Murano has defined reverse solicitation as a physical act on behalf of the investor to enquire about a product. This can be via email, fax, phone, requesting more info via a database, etc. Chromic is very similar to requesting info via a database. The key differentiator is that the request becomes well documented and adds a level of compliance for both parties, while also facilitating relationships.
If Chromic, Murano’s US-patent-pending email process, is deemed to qualify as “reverse solicitation,” then it could be a crucial advantage for managers who wish to continue accessing the world’s second largest asset management market – the European Union – potentially without having to comply withAIFMD, or navigate individual countries’ National Private Placement Regimes (NPPRs), which are often getting “gold-plated” according to studies including the AIMA/EY survey of AIFMD readiness.
Murano founder Ole Rollag is the first to point out that there is a lot of uncertainty regarding NPPRs and hopes that this potential solution will become an accepted and credible method. Even where countries have transposed AIFMD into local laws, the rules on reverse solicitation may not be clearly – if at all – defined. And several countries have not yet transposed AIFMD. However, Murano is in the process of asking an opinion from a large, well known law firm for each member state. Once this is done, then Murano will be able to gain comfort in using this solution more widely.
Every Murano client is treated differently and each client can opt for a contactable universe of investors. Or, the client can request Murano to refrain from contacting particular types of investors. Managers’ exclusion lists can include specific named investors, generic categories of investors, or even entire countries.
The bespoke nature of Murano’s service attracts both the fund managers and the end investors. With an estimated 13,000 hedge funds, 16,000 private equity funds and 75,000 long-only funds worldwide, Murano finds that allocators and managers alike benefit from its thorough approach to filtering. “Investors are inundated with around 300 emails and 10-20 phone calls from funds that don’t necessarily know what the investor’s criteria is. We are trying to reduce that volume and allow funds and investors alike to have worthwhile, meaningful conversations,” says Rollag. He views Murano as moving the marketing business model from something analogous to “door-to-door sales” to a tailored dating service akin to the match.com dating site. Murano analysts are constantly calling investors to ask how, where and why they invest, mapping their requirements across myriad axes.
“We like to work out all of the deal-breakers ahead of time,” says Rollag, whose staff will enumerate each investor’s red flags – and also manager preferences for investor types. Murano lets investors request contact from only a small set of managers that most closely match their requirements; meanwhile managers get investor reports as and when they are relevant. Murano takes pride in providing “high-touch” service with abundant personal attention devoted to each client – and each investor.
Rollag argues that Murano’s nuanced filtering approach marks an advance on applying quant screens to databases. Murano believes that “each and every investor is different,” and aims to discern various qualitative preferences that cannot be codified into a quant screen. A general concern about databases is the degree of under-lap amongst them. Yet even those investors who do have 10 different databases at their disposal are often frustrated to find that many funds do not report to any of them. So Murano has always sought to give investors access to funds outside the databases’ radar screens, and now Murano also aims to give European investors one route into funds outside the scope of AIFMD, UCITS and NPPRs.
Not third-party marketing
Murano is exempt from regulation because it is not naming or representing any manager, nor raising assets for them. Murano recognises that some excellent third-party marketers (3PMs) do exist, but one of Rollag’s regular blog postings identifies challenges to the 3PM business model. Today’s typical due diligence time frame of six or nine months is too long for many 3PMs to cover their costs whilst awaiting commissions. Hence many of them seek retainers, but they can then become incentivised to simply maximise the numberof fund clients rather than raising assets.
Similarly, some 3PMs may be “throwing mud at the wall” and spreading their efforts too thinly across too many mandates, Rollag thinks. In contrast, Murano thinks that their capacity is limited to 125 clients. Additionally Murano does not want to cannibalise its own client base by enabling investors to contact two competing funds.
Another worry is the reputational risk entailed in being represented by 3PMs that have any skeletons in their cupboards. The over-riding obstacle for some investors is simply that, in the wake of the New York State Common Fund and CalPERs “pay to play” scandals over introductions, some investors are effectively prohibited from dealing with 3PMs. The over-riding issue for managers can be that variable remuneration is far lower for in-house marketers. People on the payroll do not need to get paid anywhere near the 20% of fees in perpetuity that 3PMs traditionally demand. Murano does not charge fees based on assets raised, but reckons most funds only need to raise $2 million or $3 million per year to cover Murano’s fees. Rollag thinks that Murano’s service can be cost-effective and claims that between 40% and 60% of leads supplied by Murano result in meetings between investors and managers, with between one in 10 and one in 15 of these meetings in turn begetting due diligence if the service is used effectively. Testimonials emphasising both Murano’s empathetic ears, and the quality of leads supplied, appear on Murano’s website.
Murano’s investor database encompasses family offices, pension funds, banks and prime brokers, consultants, investment managers, funds of hedge funds, and others that can invest at least $1 million into a fund. Murano endeavours, on a best-efforts basis, to ensure that investor leads are all accredited investors. Ultimately, though, the KYC (Know Your Customer) and compliance responsibility remains with managers.
Patent and licensing potential
Being close to obtaining one US patent, for a port between its own customer relationship management (CRM) with an independent CRM, Murano is seeking a second US patent for the Chromic process. This would pave the way for licensing Chromic to any other service providers who have regular contact with end investors, including custodians, administrators and others.
Murano founder and CEO Ole Rollag cut his teeth trading fixed income options before becoming a fund manager for SocGen, and then eventually managing director of Nordea’s alternative investments platform. By 2008 Rollag wanted to do his own thing. His failure to get traction for an event-driven long volatility fund – which would have been a great strategy during the crisis – has given him first-hand experience of just how difficult it is for smaller and early-stage funds to raise assets. Rollag subsequently set up a boutique, Perfecta Partners, to help asset managers and family offices with evaluating and building businesss. Perfecta spun out Murano in 2011 and since then Rollag has not looked back. Now Murano is seeking to on-board new fund clients, servicing predominately hedge funds, but also other types of fund such as private equity and long-only funds.