By Kristina West – The 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 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 (pictured), 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 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.
