As Brexit draws near, fund managers are getting nervous. Their ability to offer services to customers in the EU is at risk, as the status of both Alternative Investment Fund Managers (AIFM) and Undertakings for Collective Investment in Transferable Securities (UCITS) passports, which open the doors to fund distribution, are uncertain. It is possible that UK fund managers will be unable to access EU investors. And there is no timetable for when these issues will be resolved.
Fortunately, a simple solution lies at hand. By establishing a base in an EU jurisdiction, market access can be guaranteed no matter how negotiations proceed.
Some larger managers are already going down this route and opening a subsidiary in the EU. But for the bulk of the market, the best way is to use a third-party management solution.
It works like this. A specialist partner based in the EU, such as Crestbridge, is already licensed to manage and distribute funds across the bloc from its Luxembourg office. The UK fund manager then appoints this EU partner to be its European manager. It offers EU access and takes care of all the nitty-gritty: the compliance, audit, relationship with the regulators and risk management. But the core work of fund management is delegated back to the UK fund manager.
The method guarantees market access irrespective of the type of Brexit, hard or soft. The end-investors are not affected as their assets are managed just as before.
A third-party management company solution has a lot of advantages over establishing a proprietary base in the EU. The cost is cheaper. It is a model that has existed for a decade, starting with UCITS and then being transposed to the AIFM.
The end-investors are not affected as their assets are managed just as before
The European Securities and Markets Authority regulator is clear about the minimum requirements for establishing an EU operation when going it alone, and the burden is significant. There can be no “brass plate” arrangements. In terms of headcount, the EU office must have competent people with specific knowledge on the asset class and experience in the domicile. The number of people required depends on the size of the funds managed. There are capital requirements. And regulatory functions must be done in-house, which is costly, and competently with the regulator vowing to be strict.
Opening an EU office is tricky to execute. It is not easy to hire specialists in Luxembourg, a financial centre where there’s already strong demand on the talent pool. Clearly, there will be intense competition as other UK companies take the same route.
A third-party management company solution smooths the way. The regulatory and administrative burdens are shouldered by a specialist, who already employs experts in the necessary fields.
Furthermore, the third-party management company model works in other parts of the world and can be a useful proposition for non-EU funds. In addition to Luxemburg, Crestbridge has offices in the Cayman Islands, Bahrain, London and Jersey, which opens the door for global expansion, if needed. Jersey in particular is an interesting option, as it is not in the EU, but is geographically close to London and the major EU centres, and boasts a very strong financial industry and respected system of regulation.
Third-party management services look set to be the mainstream solution to Brexit for fund managers. The challenge is to pick a third-party management company with the right credentials. At Crestbridge we have established an EU presence for more than 40 funds. Our licence enables us to offer access to the EU without limit, from Scandinavia and the Baltics, to Spain and Italy. We boast more than 250 staff in five jurisdictions, $120 billion assets under administration globally and act for some of the most reputable names in the industry.
Our expertise covers administration, management company services, risk management monitoring and oversight, accounting, financial reporting, corporate secretarial, and tax and VAT compliance.
The Brexit clock is ticking. Our third-party management company solution offers peace of mind – the knowledge that no matter what happens, fund managers can thrive in the EU with the most efficient structure in place.
For more information please visit www.crestbridge.com/management-company