Some actors are setting up a manco for the first time and will use it to globalise their activities, leveraging the same teams and substance [ed. note: a set of management and compliance rules spelled out by financial regulator CSSF] to provide services for investment funds domiciled here in Luxembourg, and abroad.
However, some of the large international companies which are implementing global cross border strategies also wish to leverage their expertise available in other global hubs. This type of client is asking, “How can I utilise my existing risk management experts within the group and fulfil all the Luxembourg requirements? Can I continue to rely on my remote portfolio managers dedicated to local markets? What options are there that do not require us to hire additional resources or require wholesale relocation to Luxembourg?”
A useful addition to the legal toolbox in Luxembourg is the global employment contract, where one person can operate under different employment contracts and thus legally fulfil different roles without incurring multiple employment costs. The mutualisation of human resources, although cost effective, creates a new challenge. For any group that is leveraging shared resources, some engineering will be required to cope with potentially multiple regulations applying to their staff, and the organisation of Chinese walls.
A good number of existing Ucits mancos that have been successful are considering becoming an Alternative Investment Fund Manager. The reasons for this evolutionary step are clear, as the requirements under the AIFMD are potentially already being met by firms that are fulfilling Ucits substance, governance and process requirements. They additionally want to keep costs under pressure and leverage existing substance.
Third party mancos are able to leverage this extension of opportunities created by the AIFMD to offer mutualisation benefits for smaller actors or actors for whom being able to operate out of Luxembourg is not key to their development.
For white label mancos that are already providing services for a large number of funds, an upgrade is not always such a concern. The issue is more technical, for example, “How do I add-on the necessary additional expertise to service a widely diversified portfolio of client strategies?”
These mancos winning new clients will depend on how they can differentiate themselves by offering certain added value services, such as distribution support in the form of pre-validation of the appetite for certain products in targeted markets, and the logistical access to such markets. This is especially useful for winning promoters who have no idea how to penetrate the EU market but who are still convinced that there is an opportunity.
The role of local directorship and expert support services is also developing. Historically independent directors were more required by the compliance and controlling functions, while now we see increasing demands for hybrid profiles who can add expertise to a board with a risk management background or be a counterweight to the delegated portfolio management function.
Existing small AIFMs may like to further assess the opportunity of a full AIFM strategy. Key considerations for them, while determining their strategy will be to decide whether they might need to rely on the distribution passport or not; and for some of them this will be dependant on the forthcoming development of the private placement regimes in the countries where the funds are distributed.
Sandrine LeClercq is an attorney with Baker and McKenzie in Luxembourg.