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CP86: What to do when the rules change

, Patrick Waters

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CP86: What to do when the rules change

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Gone are the days when a P.O. box and a few business trips might suffice to fulfil asset manager regulatory responsibilities in their fund domiciles. Patrick Waters explores how managers can tackle these new challenges.

 

Many U.S. based investment managers already have European investors and count on that pool of investors to help them achieve their targets. Depending on the type of structure you’ve chosen, you may be operating your own Self-Managed Investment Company (SMIC) or working with a third-party management company (ManCo).

 

But the ground is shifting as jurisdictions look to have greater supervision and governance of the funds under their authority. As regulators in domiciles such as Ireland call for more ‘substance’, the hurdles of time, resourcing and oversight required to set up your own SMIC are only increasing. Gone are the days when a P.O. box and a few business trips might suffice; now you need boots that stay on the ground as part of a significant, sustained local presence. The up-front investment and maintenance costs are substantial and include licensing fees, local office space and competing for talent to handle all the legal, regulatory and operational complexities.

 

Managing governance demands against costs

 

Furthermore, discussions at the 2019 Irish Funds Annual UK Symposium pointed to dwindling days for SMICs, with a widespread expectation that the 230 Irish-based self-managed funds might still need to appoint a management company to ensure good governance and protect end investors. It is interesting to note the impact of Circular CSSF 12/546 in Luxembourg on the investment companies which did not have a designated management company within the meaning of Article 27 of the 2010 Law (self-managed SICAV – SIAG). Since the introduction of the Circular, the majority of investment companies decided to ‘designate’ a management company subject to Chapter 15 of the 2010 Law, or to create such a management company. This has resulted in the current number of self-managed SICAVs-SIAG being less than 30.

 

This demand for greater governance, substance and transparency is affecting ManCos as well. They will be expected to have capital to support them and a reasonable level of staffing, which, as per the rule of thumb in Luxembourg, may rise as high as 3 FTEs plus 1 FTE per $billion AUM—meaning a fund with $10bn in AUM would potentially require 13 FTE. And finding the best fit and talent for an organisation can be difficult in a highly competitive market such as Ireland. Regulatory oversight is also a consideration as processes and documentation come under greater scrutiny from the Central Bank of Ireland, in particular now that the Central Bank of Ireland is performing themed inspections of underlying SMICs and ManCos. As a result of the above factors, costs associated with maintaining a SMIC continue to rise, and so does the impact on your profitability.

 

So, what is an investment manager to do? On the one hand, they are facing increasing demand to develop and launch new strategies more efficiently, and in more markets, and to do it while investor interest holds. On the other, they are given aggressive growth and revenue targets and told to keep costs to a minimum.

 

Meeting local challenges with local expertise: how AMX can help

 

From its operations base in Cork, established in 2016, AMX now offers a range of solutions to investment managers.

 

The first option is to choose the Irish-based Super ManCo, which handles operations and governance in house, including Designated Person activities. This offers an efficient and cost-effective option for investment managers who are looking maintain or expand their presence in other jurisdictions. AMX provides an established, specialist fund structure and a platform that can handle governance and oversight, relieving you of as many administrative burdens as possible. Even so, your staff will still be managing many day-to-day activities that take their focus away from clients.

 

The second, for managers who want to expand their base more broadly outside the U.S. and launch new funds more rapidly and efficiently, is to leverage the full AMX solution. This provides you with a different distribution option via a comprehensive suite of services that relieves your team of time-consuming activities that don’t enhance the bottom line. This solution also has the benefits of appointing the AMX Irish Super-ManCo.

 

A streamlined and efficient process

 

You’ll be leveraging an established infrastructure and platform geared towards managing the entirety of the investment process: fund management, distribution, and most administrative burdens including AML/KYC, regulatory and compliance reporting, and legal negotiations. Templated documentation and expert onboarding make it easier to onboard your first fund and — once that’s established — every new fund follows the same path. This compresses the time from strategy to implementation to distribution, making it more likely that your strategy gets to market quickly while investor interest is high. At the same time, benefits of scale help to minimize fund costs and reduce drag.

 

Funds are managed and fully governed by AMX on our multi-asset institutional platform. The manager runs the portfolio, works with their clients and retains critical decision-making and middle office functions. With an efficient infrastructure provided by a trusted partner, managers can focus on what they do best: managing existing funds and quickly launching new strategies and, ultimately, gaining fresh investors in new markets at minimal incremental cost. The AMX platform allows investors to view their funds’ performance and transaction history and every new fund can be seen by the investors using the AMX platform, enhancing your distribution opportunities through additional visibility.

 

Our experts understand the challenges facing investment managers and can help you identify the solution that’s right for you. And, should you need to move existing funds or create new ones, our onboarding team will work collaboratively with you to simplify the transition using standardized documentation.

 

 

Photo credit: Mondli Khumalo


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