Jennifer Walker, conducting officer at Bridge Europe, started off the conducting officers session at last week’s Association of the Luxembourg Fund Industry Private Assets Conference by outlining what is needed to perform as a conducting officer: “It’s important for us to make sure that we are up to date at all times on any changes in regulation, market practices, and what our peers are doing.” She is not only staying alert about any Luxembourg Financial Sector Supervisory Commission (CSSF) updates, but she also maintains close communication with other conducting officers.
As a service provider, when we’re on a call with a private investor in Greece or a family office in Brazil, they don’t take a whole lot of comfort from the FATF report.
Walker is attentive to internal audits to improve and learn about what the “others are doing better.” She explained that as Bridge Europe got its alternative investment fund manager (AIFM) licence “a bit over a year ago,” they had to draft policies and procedures. A self-declared “pragmatic,” she explained how she colourfully brought in line her colleagues in the US.
“I know you’ve been doing it this way, for 20 years, this is what we need to do… I’ll learn the processes, I’ll do the gap analysis, I’ll figure out and propose some solutions for how [you] can bring [your] processes into line with what the expectations are. and then I act as a resource.”
Tackling one of the hottest topics in Luxembourg: KYC
Despite the recent of the recent FATF inspections, Derek Russell, funds director at JTC (Luxembourg) said: “As a service provider, when we’re on a call with a private investor in Greece or a family office in Brazil, they don’t take a whole lot of comfort from the FATF report.”
Russell commented that trying to establish the source of funding results in “difficult conversations with investors.” He observed that some investors “skip some parts that they don’t understand, like Fatca CRS and self-certification.” JTC mandated external consultants that simplified their AML-KYC checklists asking “for essentially the bare minimum, under the regulations, obviously.”
Yet Russell was confronted with clients “squeezing us to say, you know, fundraising is difficult, we need you to close these guys into the front as quickly as possible before they change their mind [and go to a] Delaware or a Cayman fund where it is a little bit easier for them to get in from an AML perspective.”
Contrary to the US where [Bridge] controls the process, Walker explained that they use third-party fund administrators in Luxembourg. She is expecting the AML onboarding process to go as “as smooth as possible” given that clients will not hesitate to “pick a different investment vehicle… pick a different fund… pick a different fund manager.” Therefore, getting into “nitty gritty” such as checking the onboarding of investors for other clients is key.
Retailisation of private investments is all the rage
Retail investors have noted “the impressive performance from the alternative sector but they are a bit nervous, or they don't like it to be around for 10 or 12 years,” said Alain Delobbe, managing director at Alter Domus Luxembourg. Running what he calls “semi open-ended funds” requires “accurate and reliable” valuations “to ensure a fair treatment of the investor.” He is not therefore too concerned about supporting asset managers with European long-term investment funds (Eltif) on the valuation side, but more on the central administration side.
Demands to set up Eltifs are strong but come with heavy requirements. When her US counterparts are asking Walker whether she could provide support, she answers, “Yes, I can and here’s what it’s going to take… what we need to focus on, here’s how I can support you…[ensuring] that the business partners understand what they're signing up for and realising it's not sort of a set it and forget it, there’s going to be additional reporting… compliance… and additional costs associated with it.” As more investors are looking into retailisation, she expects the AML requirements to “multiply.”
“My AML-KYC team can't grow fast enough to keep up with the demand in terms of the amount of AML-KYC that we need to do,” said Russell. The central administration was already feeling the pressure as “more and more smaller private investors coming in into closed-ended funds,” whereas it used to be mainly major institutional investors. This has enabled asset managers to build a “fair commitment size.”
How to hire and keep talents?
“If you don't talk about staffing, we’re ignoring a massive elephant in the room,” said Russell. He acknowledged that all the service providers suffer from turnover issues, with “many happy to move for an extra €5,000.”
During the interview process, “the first questions that I ask people is: what motivates you, because I love hearing people say… I am motivated by problem-solving, having autonomy, and being able to run a problem to the ground,” said Walker.
On the first day of an onboarded employee, she asks: “I want you to go spend the next week reading all of our policies… everything you can about what we do and what we’ve built so far… and then… tell me what we can rip up and make better and then I want you to drive that process of enhancing things.”
Russell thinks that the “secret sauce” to keeping employees lies with open and honest management, clear goals, engaging people through trainings, providing employee the right tools and introducing as much automation as possible so that they can focus on added value tasks. Walker added that she can keep her employees by making them “feel valued…and excited about what we have built.”
Delobbe thinks that working for an AIFM enables their professionals to “have a broader view of the fund industry.” He takes comfort from “never having had issues in recruiting operational people,” whereas it has been more challenging with valuation and risk management experts. To keep them on board for longer, Alter Domus has opened the capital of the company to their employees, has satellite offices and stays flexible on home office options.