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The importance of independent service provider integration

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Collaboration is extremely important for any service provider looking to do business in Luxembourg and in that respect, Circle Partners (`Circle'), an independent fund administrator, is no exception. 

Having first established a footprint in the Grand Duchy in 2011, Circle has invested considerable time and money and is now beginning to see the fruits of its labours as it prepares to establish an umbrella SIF. The platform will act as an incubator for managers wishing to create a sub-fund as opposed to taking on the burden of establishing their own standalone fund structure. 

Michel van Zanten (pictured) is a Switzerland-based director of Circle Partners. He confirms that Circle is about to sign up its first manager to a sub-fund of the umbrella SIF.

"We will be able to support managers in the whole process of setting up and registering a sub-fund by working with a law firm to create the PPM. We are working with a couple of brokers who will be able to support a wide array of asset classes not only in mainstream European countries but internationally. The SIF will support managers of sub-funds with assets of less than EUR100 million," confirms van Zanten.

Fund platforms like Circle's can only establish the sub-fund if the request has come from the appointed and licensed fund management company (that isn't running their own umbrella platform) and ensured that the existing service providers fit with the strategy and management of the new sub-fund.

What makes this a challenge is that in order to receive the mandate, the investment manager needs to partner up with an AIFM, before Circle – or any other SIF (umbrella) platform – can take the next step. 

"The AIFM isn't going to give a fee quote until they've done all the necessary fund due diligence. They have to decide between each other to do business and then the management company (the AIFM) would ordinarily go out and source quotes from the main service providers.

"In this situation, we as the introducing fund administrator might get asked but it's not guaranteed. There are many ways you could lose a fund proposal as an administrator because in this scenario you aren't in the driving seat; the AIFM is," says van Zanten.  

"It's important to work together with many Luxembourg-based AIFMs but that alone is not a guaranteed road to success. If you work with an independent AIFM, they have to determine whether you are fit and proper to host their client's sub-fund. AIFMs are aware of how complicated it is when it comes to setting up new alliances without disgruntling their existing service providers or, potentially, the regulator."

As long as the fund structure falls out of the scope of the AIFMD, there is no requirement to appoint an AIFM. But as Circle builds its network of AIFMs, synergies should develop and lead to improved quality: Circle recommending the best AIFM if and when a sub-fund reaches EUR100 million, and the AIFM recommending Circle Partners' SIF platform to fund managers who wish to dip their toe in Europe.

"We are working closely with a handful of management companies that will allow us to select the right management company to support the right fund strategy. We will then be able to offer a full solution that includes the AIFM, fund administration, custody, trading, risk, etc," concludes van Zanten

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