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There is no herd immunity for asset managers or investors

, Eoin Motherway

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There is no herd immunity for asset managers or investors

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Recently, we saw publication of the Monterey Luxembourg Fund Report 2020. Similar to the Monterey publication in Ireland, which is published in Q1 of each year, the data highlights structure of funds, delegates and service providers appointed along with a

 

As an asset management community, we collectively contribute to this data, to further the transparency of our global fund industry. In particular, the data highlights how prevalent Ireland is as a jurisdiction to set up funds of all structure types to suit investor demands. It is imperative to ensure that the data is accurate, as its availability informs the asset management arena of market leaders across ManCos, Lawyers, Administrators, Auditors, Depository and Portfolio Managers.

 

Most notably it’s a lens to our investors on how we are structured from a legal entity perspective and how our over-arching governance is discharged – whether internal or third party ManCo or Self-Managed.

 

‘Dear CEO’ – the industry awaits
 

On the horizon for any Management Company domiciled in Ireland is the much-anticipated Dear CEO Letter from the Central Bank of Ireland (CBI). Commencing with a questionnaire issued in mid-2019, followed by desk-top reviews for selected ManCos and SMICs and concluded with thematic inspections, the CBI has assured our industry that, despite Covid-19 impediments and distributed home-working, there will be no delay in its publication. They, as much as the rest of us, know the eyes of the asset management world, from investors to ESMA, are watching and waiting expectantly. Maybe a hint of what is to come was illustrated in the recently published ESMA letter to the European Commission which highlighted concerns in relation to substance and outsourcing of Designated Persons (DPs).

 

Officially termed Fund Management Companies – Guidance, industry vernacular calls it CP86; referring to its conception via Consultation Paper No.86. Arguably the longest gestation of guidance, with two rounds of public consultation, its  implementation date was 1 July 2018, meaning that ManCos and SMICs, should to this day have appropriate procedures and policies in place to operationally adhere to CP86. What is less clear is investment firms’ appetite to comply fully with the obligation given the costs involved with setting up operations in Ireland, having appropriate staff with relevant expertise and various other fixed and variable overheads. Early adopters and first movers have benefitted and are arguably ahead of a stationery herd, which is now wondering how far it really needs to go.

 

The question of substance
 

Since 1 July 2018 there have been 100+ applications to the CBI for authorisation as a  management company; all of which have some degree of substance. There is  discussion, often emotive, that some firms have had greater asks than earlier entrants but, irrespective of that point, all ManCos since January have some degree of substance. Of the 250 that predate January 2018, approximately 200 have little or no operational substance. They do have a board of directors, some of which may perform one or more of the six key management functions.  Numerous management companies may even second DPs from a provider of fiduciary services – but actual employees of the ManCo with true substance are mostly few and far between. The majority of SMIC’s by their nature do not have substance, but there is wide acknowledgement that obligations will change for  the SMIC community.

 

Institutional investors, and end-savers of pension schemes, are paying attention to confluencing regulatory landscapes including the CBI thematic review, potential Brexit implications on distribution for UK mangers and distributors, ESMA’s letter on recommended changes to AIFMD including substance and delegation and other topics. At AMX, we expect investors and asset managers to begin greater interrogation on governance, legal entity structure, regulatory impact of numerous directives and Brexit consequences if there is no agreement on equivalence protocols. This interrogation will ensue from now to the end of the year.

 

Taking the bull by the horns
 

Tempus fugit– and with that, the collective impacts will see that stationary herd shift gears to an inevitable stampede for scarce resources, with the competing forces of promptitude and procrastination. Each of the herd will be judged individually, there may be herd behaviour now but there will no herd immunity later. 

 

The Central Bank of Ireland is expected to share the outcome of its themed inspection of CP86 shortly. The AMX Team are standing by and we look forward to discussing you concerns and issues – please get in touch.  

 

Photo credit: Eoin Motherway


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