Since Brexit has become a reality, UK managers have been putting in place contingency to protect their businesses, creating opportunities for other European financial centres including Luxembourg. Once the UK leaves the EU next year neither the UCITS or AIFMD regimes will apply and UK entities will no longer be able to manage and market their funds in the EU.
The risk to losing access to the single market is unacceptable to the UK fund manager community and in that regard Luxembourg is a really viable alternative, according to James Burke (pictured), Head of Apex Europe, Apex Fund Services (Ireland).
“The reputation and the business friendly environment are the two main reasons for choosing an onshore jurisdiction like Luxembourg,” says Burke. “UK managers have two main options. The first is to establish a presence in an EU country, the second is to engage with a third party management company. Establishing your own presence is obviously the safest course of action as it gives you guaranteed access to the single market and also has the added benefit of no leakage of fees to third parties in the management structure.”
Managers need to be aware there is increased regulatory scrutiny on firms to demonstrate sufficient substance to carry out the duties and obligations of an AIFM; including governance, risk management, and other internal compliance controls. Establishing a newly regulated management entity in an EU hub also has capital implications.
For smaller managers and non-EU managers who do not wish to have an EU presence, the third party AIFM model is appealing.
“There are clear advantages to using Lux-domiciled third party AIFMs: speed to market, no regulatory approval process. The manager simply focuses on their core competency of managing the portfolio without having to worry about the cost implications of setting up their own management company,” comments Burke.
The Apex Group now has a substantial presence and breadth of offering in Luxembourg. Following the close of its recent acquisitions, most notably in this instance Warburg Invest Luxembourg SA and MM Warburg & Co Luxembourg SA and LRI Group, the combined Group will have over 450 staff in Luxembourg alone and the ability to service the full value chain of a fund.
Luxembourg service providers who can offer third party AIFM services, back-office administration, custody and depositary services, will be well placed to attract UK managers with the offer of a one-stop-shop solution.
“We have the infrastructure a client can leverage and which is adaptable, while still giving security and control of their fund management activities (including GDPR). We have the technology to receive consolidated reports from the different service providers. Clients want reports, controls and infrastructure and Apex has a lot to offer in that respect,” says Sonja Maria Hilkhuijsen, Global Head of Compliance and Data Protection.
She further adds that whereas some Luxembourgish management companies might cover the cross-border activities for managers in Luxembourg, Ireland and the UK, Apex is unique as “we have a larger footprint – we have worldwide centres of excellence which allows us to adapt to the distribution models of the clients”.
“With the LRI acquisition, the management company will leverage the full infrastructure of Apex. Post-Brexit, it should offer some interesting opportunities for us,” concludes Hilkhuijsen.
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