Management Companies (ManCos) provide asset managers with a cost-effective solution for certain specialised processes, freeing them up to do what they do best: add value for investors.
Asset managers have had more than enough to worry about in recent years, leading an increasing number to outsource certain tasks to help them to focus on their core activities.
One of these options is a third-party management company – or ManCo.
The right ManCo can relieve the burden of the regulatory framework, oversee legal and compliance needs along with overall portfolio management and valuation, among many others. Essentially, ManCos allow the asset manager to focus on generating alpha, through activities such as picking stocks and in-depth sector and market analysis.
As part of our single source solution for asset managers, Apex Group has acquired two well-known, established names in the ManCo space: FundRock and LRI.
FundRock and LRI help clients to streamline their operations in a cost-effective manner by offering third-party ManCo services, which can be supplemented with a range of administrative, middle office, banking, depositary and custody services offered through the wider Apex Group.
In a recent webinar hosted by Apex Group, our panel likened the services ManCos provide with those needed to run Formula One cars. The asset manager is the driver of the car, and has to win the race, but the ManCo ensures the car is well built, is filled up with fuel, and can run smoothly – and fast.
Who uses a ManCo?
There is a misconception that only small and boutique asset management companies use ManCos. In fact, some of the biggest asset managers in the world are seeing the benefits.
Larger managers may have the necessary expertise and authorisations, yet they may decide to use ManCos for either their Undertakings for Collective Investments in Transferable Securities (UCITS) and Alternative Investment Fund Management (AIFM) funds for certain jurisdictions.
Similarly, an asset manager operating in most major jurisdictions in Europe may decide to set up a small number of funds in a specific country. Even if it holds all the permissions there, it may not want to put all the infrastructure and oversight capability in place and deal with another regulatory regime for just one or two funds.
Along with third-party asset managers, Apex Group is also seeing a growing number of pension funds using ManCos to set up new funds. Large or multinational pension funds can benefit from ManCos supplying an aggregated view of risk across different jurisdictions and different managers they are using.
Why is scale important?
FundRock and LRI are both fully authorised ‘Super’ ManCos, meaning they can service both UCITS and AIFM funds. They also both have long-standing reputations in the industry and between them have the biggest third party ManCo service offering in Luxembourg – itself one of the biggest fund domiciles in the world.
Scale helps investors. By scaling up operations and expertise, cost is spread over more clients, who can pass on lower costs to investors. It can also help facilitate the necessary investment in ever-evolving technology – something asset managers need to note.
For those using Luxembourg as a fund jurisdiction, the importance of scale has been a factor since 2018 when the Commission de Surveillance du Secteur Financier (CSSF) set out more demanding criteria for ManCos under Circular 18/698. Similar issuances from the Central Bank of Ireland known as CP86 were subsequently followed by a letter to the Chairman of all funds asking them to confirm in writing that they were adequately resourced to meet the necessary requirements. These would be challenging to meet by any ManCo without the required critical mass and scale, and one of the reasons behind the recent trend of consolidation, with many smaller ManCos merging or disappearing.
What is driving the popularity of ManCos?
As regulatory complexity continues to mount, the scale required to comply requires significant resources. Firms with either limited internal resources or small third-party providers may struggle to comply and flourish in this new environment.
For example, one of the most recent pieces of regulation is the European Union’s Sustainable Finance Disclosure Regulation (SFDR), which came into effect in March. The regulation mandates additional non-financial disclosure from a wide range of fund structures, including UCITS and AIFs, both at a firm and product level.
A large, experienced ManCo has the resources to understand new regulation fully and tailor that knowledge to each client, rather than using an ‘off the shelf’ approach.
Our aim is to provide you with in-depth advice on the opportunities, risks and requirements for designing, setting up and managing each investment fund. We will plan and coordinate all steps in fund structuring and the legal and administrative requirements relating to the fund and investors.
With the scale to operate across different geographies, our network of experts will also help identify the best regions to target for distribution based on your specific investment strategy. FundRock and LRI have the expertise, experience and global presence to help you adapt to any geography and any regulator’s requirements.
Our ManCo services include:
To speak to one of our experts, please contact us.
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