MANAGEMENT COMPANIES IN FOCUS 2021
SUPER MANCOS BUILD MARKET SHARE
LUXEMBOURG LEADS MARKET DEVELOPMENT
FEATURING ALFI, MJ HUDSON, UNIVERSAL-INVESTMENT GROUP AND WAYSTONE
DUBLIN LOOKS TO SERVICE EXTENSION
Governance, risk and compliance is a complex field. Navigating it needn’t be. Drawing on over 20 years experience, we have the expertise and technology to build the investment structures you require. We have the resources to support them. We have the capabilities to protect them. And we can do so in every region in the world. In fact, we’re currently supporting asset managers with over US$1Tn in AUM. At Waystone, our aim is to provide you with the certainty you need. Because it’s only with certainty that you and your clients can achieve success now, and in the future. waystone.com
CONTENTS
INSIDE THIS ISSUE... 04
OVERVIEW Substance over style: ManCos look to the future
07
MJ HUDSON Regulation pushes Irish ManCo adoption
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WAYSTONE From pole to pole: Super ManCo Waystone offers global support
09 ALFI Leading the pack: Luxembourg extends its reputation as a thought leader
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DIRECTORY
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MANAGEMENT COMPANIES IN FOCUS 2021 | OCTOBER
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OVER VIEW
SUBSTANCE OVER STYLE: MANCOS LOOK TO THE FUTURE BY KRISTINA WEST
T
he management company concept was first created to provide assurance of good governance and control with self-managed fund entities and vehicles. As funds proliferated and as the industry matured, the management company concept was born as an entity that would provide the necessary governance, oversight and services. Many firms took the decision at this time to create their own, internal management company; but since that time, the industry has seen greater development and detail of the rules, particularly with the focus on liquidity and sustainability, and expectations have grown, leading to the establishment of third-party ManCos servicing UCITS funds, AIFMs, or – more recently – both. INTERNAL OR EXTERNAL?
There are still compelling arguments for both
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inhouse and external ManCos, depending on the stage or situation of the firm; for example, those who want an EU European licence, whether for European distribution or individual account management, may wish to set up their own ManCo, while most of the top tier managers who required an EU contingency are now set up with their own regulated firms somewhere within the EU. However, for many, the costs of market entry are high, so firms need to consider how long they will be in the market, whether the costs are too prohibitive, and if the size of the investment is justified. Craig Blair, VP, General Manager, Board Member and Conducting Officer at Franklin Templeton, also flags risk appetite as an issue. “You have to have substance and specialisms in the domicile that the management companies are in.” The benefits of using a third-party
provider can include lower financial outlay for new market entrants, time to market, and going into a new area of investment where an experienced third-party provider knows the asset classes and can provide good governance. SUPER MANCOS
Key services offered by third-party providers revolve principally around the six key management functions required by legislation, either UCITS or AIFMD, with supervision of delegates, risk management oversight, and investor management oversight at their core. However, more recently, some third-party providers have begun to offer services in both UCITS and AIFMD funds. While the capital requirements, reporting and regulation structures may be different between the two, third-party ManCos have seen a gap in
MANAGEMENT COMPANIES IN FOCUS 2021 | OCTOBER
OVER VIEW
the market and are willing to cater to demand from large and sophisticated clients. THE BATTLE OF THE JURISDICTIONS
Luxembourg remains at the head of the European market for fund administration and related services, with more than EUR5.3 trillion in net assets under management in regulated funds. And funds domiciled in Luxembourg pay lower taxes on their funds under management than in other EU nations, an advantage which helps investors to benefit from a larger slice of the payouts. The Association of the Luxembourg Funds Industry (ALFI) has a dedicated Management Company Technical Committee, with more than 200 leading industry experts, who have combined to form working groups looking at issues including due diligence on ManCos and service providers, marketing
and distribution, and ESG and EU SFDR requirements. Waystone is currently seeing client preference for Luxembourg over Ireland for private debt and illiquid asserts, as Luxembourg has built up a brand awareness and expertise that Ireland has not yet achieved. However, David Morrissey, Global Head of Client Solutions at Waystone, believes that the regulatory framework and market support will evolve. He says: “Luxembourg has the SCSP which is basically a GP-LP investment structure. Ireland earlier this year launched the AILP, which is a very innovative new structure, but unfortunately it hasn’t gained the market traction we’d like to see at this stage. It just needs a bit more time.” Yet third-party ManCos have a significant presence in the Irish market too. Patrick Robinson, Managing Director (Ireland), AIFM
MANAGEMENT COMPANIES IN FOCUS 2021 | OCTOBER
and ManCo Services at MJ Hudson Bridge in Ireland, points to the massive burden of regulation under which Ireland has been operating for years as a key driver, but also believes that service will become the key differentiator between service providers going forwards, with areas such as ESG ripe for expansion. CREATING OPPORTUNITIES
With increasing demand for services from clients and a continued focus from regulators across the world, it seems the third-party ManCo structure has never been more important. And with opportunities to follow clients into new markets and passport services into ever-more jurisdictions, the future is bright.
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MJ HUDSON
REGULATION PUSHES IRISH MANCO ADOPTION
I
n recent years, the Irish fund market has struggled under a burden of regulation that would break a lesser jurisdiction. From regulatory reporting to UCITS V, and from CP86 to CP140, the need for regulatory compliance across the board has resulted in increasing interest in and take-up off third-party management company (ManCo) offerings. Until 2017, most people setting up UCITS funds in Ireland used the self-managed fund (SMIC) model. However, there was a whole stream of continuing regulation – UCITS IV, UCITS V, AIFMD, EMIR, FATCA, CRS, the introduction of Central Bank online reporting systems, a huge increase in in regulatory reporting, PRIIPs, KIIDs, EMT/EPT, MiFID II – with none of the traditional delegates in the SMIC structure responsible for managing that regulation. According to Patrick Robinson, Managing Director at MJ Hudson Bridge in Ireland: “This really started to lead to the growth in third party management companies in Ireland.” While some firms set up third party management companies early on, MJ Hudson Bridge came later to the market with its ManCo, launching its first funds in 2017 when people were then starting to look at what management companies could offer in terms of a more effective operating model or an outsourced operating model. Robinson explains: “Shortly after CP86 started, the Brexit referendum came along and the number of asset managers looking to
BY ARMIN P. CHOKSEY
set up their own management companies in Ireland to provide a post-Brexit EU distribution solution gave regulators an opportunity to push increased local substance expectations very quickly. The push for increased local substance has continued post-Brexit, resulting in the traditional self-managed funds appointing third party management companies.” Of course, there is still an appetite for internal ManCos for those who want an EU licence, whether for EU distribution or individual account management, and scale still matters, with most of the top tier managers who required an EU contingency now having set up with their own regulated firms somewhere within the EU. However, many managers are still waiting for final clarity on post-Brexit UK access to the EU and decisions on financial services equivalence before making longterm decisions on setting up their own EU licences.. “They’re looking at all the workaround solutions in the interim, including MiFID hosting licences including in jurisdictions such as Malta and Cyprus, at how robust those are from a regulatory standpoint and from their investors’ viewpoint, and waiting until UK financial services access is clear before making decisions about setting up their own licence within the EU,” Robinson says. Robinson believes that, when the current regulatory change in Ireland settles somewhat, service will become the key
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The push for increased local substance has continued postBrexit, resulting in the traditional self-managed funds appointing third party management companies
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BY KRISTINA WEST
PATRICK ROBINSON MANAGING DIRECTOR (IRELAND), AIFM AND MANCO SERVICES AT MJ HUDSON BRIDGE
differentiator between third-party ManCo offerings, with areas such as ESG a particular area for expansion. “We’re looking at assisting our managers with the real implementation of ESG into their investment processes, investment due diligence and how investment managers are assessing the underlying companies they are investing in for ESG. Our specialist ESG consultancy business at MJ Hudson has been providing ESG services to asset managers for over 15 years and has been a huge benefit to a number of our clients in developing real ESG into their investment strategies and policies,” he says. “The next stages of growth and opportunity in management companies will be about breadth of service and that one-stop shop outsource model,” Robinson concludes.
PATRICK ROBINSON
MANAGING DIRECTOR (IRELAND), AIFM AND MANCO SERVICES AT MJ HUDSON BRIDGE
Patrick Robinson has over 20 years experience in the asset management and funds services industry. Patrick began working for MJ Hudson Bridge in October 2009. Patrick has an in-depth knowledge of UCITS and AIFM requirements and has project managed a number of UCITS Management Company /AIFM authorisations in Ireland and has provided assistance on numerous fund structuring /product development projects. He has established the risk, compliance and operational infrastructures of a number of asset management firms.
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MANAGEMENT COMPANIES IN FOCUS 2021 | OCTOBER
MJ Hudson’s Dublin office (formerly Bridge Consulting) is a “Super Manco”, providing full scope Alternative Investment Fund Manager (AIFM) and UCITS Management Company (ManCo) solutions for alternative investment and UCITS funds.
As part of MJ Hudson, we offer an extensive range of complementary services, from our offices in Europe and North America’s major funds centres, including: -
Fund formation and secondaries legals ESG and sustainability Investor relations and marketing Custodian bank and FX benchmarking Regulatory consulting and support Fund performance analytics Regulatory risk and reporting
For more information on any of our services, please contact Mark Crossan on +353 (0)1 566 9800 or email at mark.crossan@mjhudson.com
mjhudson.com
WAYSTONE
FROM POLE TO POLE SUPER MANCO WAYSTONE OFFERS GLOBAL SUPPORT BY KRISTINA WEST delegates, operational risk management, and investment management oversight at their core. “We tell our clients they should really view us as an extension of their own internal teams, rather than the firm having to consider and worry about scaling up and allocating resources to the business”, Morrissey says.” A third-party ManCo must also act agnostically in different jurisdictions to truly support service its clients. “We want to help our clients raise assets in their core markets,” Morrissey says. “Whether they need a Luxembourg fund, an Irish fund, a Spanish fund or a French fund, we offer them the regulatory support that allows them to launch a fund, which in turn, allows them to raise assets.” Waystone is currently seeing client preference for Luxembourg over Ireland for private debt and illiquid asserts, as Luxembourg has built up a brand awareness and expertise that Ireland has not yet achieved, though Morrissey believes that the regulatory framework and market support will evolve. He says: “Luxembourg has the SCSP which is a GP-LP investment structure. Earlier this year Ireland launched the Irish Limited Partnership (ILP Structure), which has been an initiative of the Irish Funds Industry for over 10 years, but unfortunately it hasn’t gained the market traction that the Irish industry would like to see at this stage.”
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U
ntil five years ago, there were still some perceived benefits for firms to build an in-house management company (ManCo), in terms of control and the assumption that using a third party might be perceived differently by investors. But with these concerns largely allayed, the rise of the third-party ManCo – and, indeed, what has been termed the ‘Super ManCo’, a firm that supports both UCITS and AIFs – seems assured. Waystone may have only officially launched in March 2021, but the merger of three companies – DMS, MontLake, and MDO – under one banner has brought together experience plus geographical and asset coverage to create a Super ManCo that offers scale, substance, and expertise to its clients. Operating principally in Luxembourg and Ireland, Waystone also has a Cayman Islands operation, has passported its ManCo into France and Spain and has a UK ACD, its equivalent of a ManCo. David Morrissey, Global Head of Client Solutions at Waystone, says: “When you look at the scale and substance at each of the management companies, together with our value-added services, it really is a significant differentiator in the market.” Key services offered by third-party providers revolve principally around the six key management functions required by legislation, for either UCITS or AIFMD investment products, with supervision of
Ultimately we’re focused on helping our clients succeed DAVID MORRISSEY
GLOBAL HEAD OF CLIENT SOLUTIONS
Waystone is well-placed for any development of jurisdictions and instruments in which its clients have an interest, with recent client requests including support in the Cayman Islands, the US and Japan. “We are in the process of rolling out the equivalent of a ManCo in Singapore to support our clients, whilst we also passported our management company to Japan to assist one of our clients raise assets and distribute their funds locally. Ultimately we’re focused on helping our clients succeed,” Morrissey says.
DAVID MORRISSEY
GLOBAL HEAD OF CLIENT SOLUTIONS
David Morrissey is Global Head of Client Solutions at Waystone and is based in Dublin. David has over 25 years of experience in product development and client service covering mutual funds, UCITS and non-UCITS, offshore hedge funds and private equity funds in the US, Europe, the Middle East and Asia. At Waystone, David uses his vast experience to assist clients with structuring and developing products in their chosen market. Leading a global Client Solutions Team, David has product expertise in key jurisdictions that include,the Cayman Islands, Europe, the USand the Asia-Pacific region.
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ALFI
LEADING THE PACK
LUXEMBOURG EXTENDS ITS REPUTATION AS A THOUGHT LEADER
T
he Association of the Luxembourg Fund Industry (ALFI), the industry body for promoting Luxembourg’s fund sector internationally, has witnessed the establishment and growth of ManCos across many years. THE HISTORY OF MANCOS
The fund industry grew primarily through the creation of self-managed UCITS fund entities. As funds proliferated and as the industry matured, the management company concept was born as an entity that would provide the necessary delegated services, governance and oversight in a more scalable way. The management company concept provided greater consistency and assurance of good governance and internal control. Craig Blair, Managing Director and Conducting Officer at Franklin Templeton International Services and Co-Chair of the Management Company Technical Committee at ALFI, says: “This ability to be scalable allowed greater depth of expertise to develop in key areas such as portfolio management oversight, valuation and internal control functions such as risk management, compliance and internal audit. Bringing that skill and expertise together in a more efficient way meant you could develop greater value around good governance.” The industry has since matured and seen greater development of regulations, particularly with the focus on topics such as liquidity, delegation oversight and more recently on sustainability. “This caused us to really think about how we structure ourselves, how to
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BY KRISTINA WEST
You have to have requisite substance, control and decision making in the domicile that the management company is in Craig Blair, VP, General Manager
have appropriate positions and substance in place, organisational requirements, and policies and procedures are defined to a much greater level than before,” Blair says. INTERNAL OR EXTERNAL?
There are still compelling arguments for both inhouse and external ManCos for asset managers, depending on the firm. For example, the costs of market entry are quite high in terms of hiring the required substance and capital requirements, so firms need to consider the financial outlay and ROI if they set up their own structure. Blair asks: “Is it a long-term committed strategy, or are you going in with more of a tactical approach with a limited number of products and therefore will the costs be too prohibitive? Then you’d possibly be thinking about that third party model, perhaps even as a transitionary arrangement for the first three to five years until you gain critical mass.” Even existing firms in the market entering new asset classes or areas of investment may want to consider whether they build organically or whether they utilise a third party who have experience already in those asset classes. In terms of the internal management company, he flags risk appetite as a
consideration for those asset managers who want to have their own structures. “You have to have requisite substance, control and decision making in the domicile that the management company is in, but the firm can leverage the infrastructure and global expertise to an extent within the wider organisation.” DEVELOPING THOUGHT LEADERSHIP
To consider the optimisation of the ManCo market, ALFI set up the management company technical committee with working groups looking at issues including due diligence on ManCos and service providers, marketing and distribution, and ESG and EU SFDR requirements. “We’re also developing an investment management oversight forum,” Blair says. “Investment management oversight is a key requirement, but I don’t think there’s been enough of a broad-based industry discussion about best practices. We’re trying to produce some practicable guidance around that.” He concludes: “In Luxembourg, the industry needs to continue to deliver value to investors, whilst ensuring the greater levels of investor protection. We are well placed to be a thought leader on topics such as digitalisation and sustainability.”
CRAIG BLAIR
MANAGING DIRECTOR AND CONDUCTING OFFICER AT FRANKLIN TEMPLETON INTERNATIONAL SERVICES AND CO-CHAIR OF THE MANAGEMENT COMPANY TECHNICAL COMMITTEE AT ALFI
Craig Blair is General Manager, Conducting Officer, and Board Member of Franklin Templeton International Services S.à.r.l. Blair has worked in the global financial services industry for over 16 years, holding various responsibilities in the Luxembourg, UK, Irish, Eastern European and Brazilian asset management industries. As Head of FTIS, he is responsible for the day-to-day operations of the corporate entity and EU-wide branch structure. He currently also sits on the Board of ALFI and co-chairs the ALFI Management Company Technical Committee.
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DIRECTORY
www.alfi.lu The Association of the Luxembourg Fund Industry (ALFI) represents the face and voice of the Luxembourg asset management and investment fund community, championing mainstream, private assets and sustainable investing. ALFI seeks to promote Luxembourg’s fund sector internationally, and to cultivate for the benefit of its members a collaborative, dynamic and innovative ecosystem underpinned by the most robust regulatory framework. ALFI’s ambition is to empower investors to meet their life goals. cCreated in 1988, the Association today represents over 1,500 Luxembourg domiciled investment funds, asset management companies and a wide range of business that serve the sector. These include depositary banks, fund administrators, transfer agents, distributors, legal firms, consultants, tax advisory firms, auditors and accountants, specialised IT and communication companies. Luxembourg is the largest fund domicile in Europe and a worldwide leader in cross-border distribution of funds. Luxembourg domiciled investment funds are distributed in more than 70 countries around the world.
www.mjhudson.com MJ Hudson, the specialist service provider to the asset management industry, provides legal and financial services, investment consultancy, outsourcing, analytics and complementary advice and support to fund managers, investors and their counterparties, together forming an endto-end platform of services. From its offices in Europe and North America’s major asset management centres, MJ Hudson’s team of 240 professionals works across the industry, with a particular focus on alternative assets, including private equity, venture capital, hedge funds, real estate, infrastructure, energy, and private credit. The firm was admitted to the AIM market of the London Stock Exchange on 12 December 2019 and trades under the MJH.L symbol.
www.waystone.com
Waystone is the leading provider of institutional governance, risk and compliance services to the asset management industry. Partnering institutional investors, investment funds and asset managers Waystone builds, supports and protects investment structures and strategies worldwide. With over 20 years’ experience and a comprehensive range of specialist services to its name, Waystone is now supporting asset managers with more than US$1Tn in AUM. Waystone provides its clients with the guidance and tools to allow them to focus on managing their investment goals with confidence.
fund-services.universal-investment.com
The Universal-Investment Group is one of Europe’s leading fund service platforms and Super ManCos, with around EUR 719 billion in assets under administration, over 1,900 mutual and special fund mandates and a workforce of more than 1,000 at locations in Frankfurt am Main, Luxembourg, Dublin and Krakow. Founded in 1968, the company is an independent platform for asset managers as well as institutional investors offering structuring and administration solutions as well as risk management for Securities, Real Estate and Alternative Investments. The companies UI Labs, UI Enlyte and CAPinside complement the group’s innovative service offering. Universal-Investment is a signatory of the UN Principles of Responsible Investment. (as of 31 August 2021)
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The stage is set for your white label funds
We are more than simply the biggest independent fund service platform in the German speaking region: Benefit from more than 50 years‘ experience in launching white label funds, more than 1000 employees and more than 710 billion euros of assets under administration. We are your expert partner for all fund services. Whether your success story has only just begun or whether you have successfully completed the first chapters - we set the stage to make sure that you and your funds stand out from the competition.
fund-services.universal-investment.com | +49 69 71043 -190 ©2021. All rights reserved. This publication is exclusively intended for professional or semi-professional investors and is not intended for distribution to retail investors. This publication is for information purposes only. The information provided should not be taken as recommendation or advice. The opinions expressed in this publication reflect the current views of the author. Universal-Investment does not assume any liability incurred from using this document or the information contained therein. Copying, passing on or making changes to this article or its contents are subject to the prior express consent of the author or Universal-Investment.
FEATURING ALFI, MJ HUDSON, UNIVERSAL-INVESTMENT GROUP AND WAYSTONE
