How will mancos tackle their top challenges?

Olivia Tournier-Demal, managing director, MJ Hudson in Luxembourg. Tournier-Demal spoke with Delano for the magazine’s “2021 forecast” series in November 2020 Mike Zenari

Olivia Tournier-Demal, managing director, MJ Hudson in Luxembourg. Tournier-Demal spoke with Delano for the magazine’s “2021 forecast” series in November 2020 Mike Zenari

How will they address them? Olivia Tournier-Demal, managing director of MJ Hudson in Luxembourg, shared her thoughts.

Aaron Grunwald: From your point of view, how did the fund management sector do in 2020?

Olivia Tournier-Demal: Among the wider industries present in Luxembourg, the fund market was less impacted than many sectors. Clearly within the wide range of asset classes managed--publicly traded shares and bonds, and privately traded assets like real estate and private equity--the impact varies widely. But as a whole, management companies in Luxembourg have not faced extreme stress.

Europe has benefitted over the past 10 years with strong growth and Luxembourg, with over €4bn in assets under management, has benefitted more than most. A significant slowdown of activity has occurred in 2020 but not a stop.

The story for 2021 will, in our opinion, be the continuity of 2020, with its increased uncertainty. We believe it is reasonable to expect that there will be fewer fund launches and less willingness to commit capital for the long term. We also believe that new opportunities will arise so that we prepare ourselves for agility.

The consultancy PWC said last year that “one of the biggest challenges for mancos will be managing their profitability.” So, how will mancos face their profitability challenge?

The industry’s cost base continues to increase faster than technology solutions can be developed and implemented to contain the costs, and there is healthy fee pressure from clients. The revenues of third-party management companies like us are somewhat dependent on the success of the fundraising by the initiators of the products, but independent from the performance of the investments.

We offer the same--high--level of service during the whole fund life cycle. What we have already seen in 2020 is pressure to align fees to the fund cash flow to a greater extent, for example, investment managers wish to pay fees once investments are made and not before. These aspects need to be taken into consideration when structuring our fees in the future.

How will mancos face their regulatory challenges?

We hear that the tsunami of new regulations is over. It nevertheless has left a very high tide, and Luxembourg needs to attract the best surfers! Management companies have had to make considerable investments in human and IT resources to adapt and keep up with their ongoing obligations.

2021 will also--finally--open the post-Brexit era. A lot of uncertainties there as well. UK and EU actors are obliged to prepare for various alternatives. Many managers are hesitating to make a move pending official guidelines. We believe that Luxembourg as a market is ready to absorb a shift of business. Hopefully, this will be accompanied by human migrations because one of our challenges is recruitment of experts.

Furthermore, on a positive note in our view, the introduction of the regulation on ESG [editor’s note: see “A new push for sustainable finance” and “Bringing clarity to green investing] measures in the financial sector as from March 2021 will add some burdens to the late runners, but for the best of all. Hopefully, this will prove that sustainability rhymes with profitability.

A version of this article was originally published in Delano’s January 2021 edition. Be the first to read the magazine by subscribing for home or office delivery here.

#Mancos perform key operational and administrative functions for asset managers who may be located in another jurisdiction