Asset managers, both conventional and alternative, are driving the increasing need for management companies (ManCos) by using them to assign tasks including fund administration, portfolio management, and UCITS/AIFM marketing. ManCos need to be forward-thinking and flexible to changes in the sector. Before exploring the main areas of focus for ManCos in 2024, let us first understand what a ManCo is.
What is a ManCo?
Management Companies (ManCos) offer asset managers a cost-effective and compliant solution for distribution, administration, custody, and related services. An asset manager’s ManCo relationship provides investors and regulators with assurance that fund governance is conducted independently and to high standards, allowing asset managers to focus on delivering value to their clients by generating returns.
There are two types of ManCos. Internal ManCos, with BlackRock being the largest example, are set up by asset managers for their suite of funds. Third-party ManCos provides outsourced ManCo services, offering advantages such as speed to market when launching new product sets in new geographies with cross-border distribution strategies. For asset managers, selecting the right domicile in the European market, such as Ireland or Luxembourg, provides connectivity to global markets and expands international reach, delivering efficiency as an outsourced service provider with specific expertise, and ensuring fiduciary management of the fund in compliance with regulations.
In 2024, more asset managers are expected to work with ManCos to deliver on their distribution strategy while focusing on managing investments. For asset managers looking to select a ManCo, our blog on “Selecting a ManCo” offers guidance.
Key Priorities for Third-Party ManCos in 2024:
- Delegate Selection and Diligence: The selection of delegates by ManCos has become critical for ensuring smooth operations and compliance with regulations such as the Alternative Investment Fund Managers Directive (AIFMD) and Undertakings for the Collective Investment in Transferable Securities (UCITS). Both Irish CP138 and Lux CSSF Circular 18/698 include requirements around a documented due diligence process, a diligence framework to assess the adequacy of delegate resources (including internal controls and a risk management framework), scalable independent and in-depth risk assessments, and ongoing monitoring of delegate activities.
- Empowering Conducting Officers: Conducting officers play a crucial role in the governance and oversight of ManCo activities, especially in the context of investment funds. They are responsible for regulatory compliance, record-keeping, risk management, fiduciary oversight, and staying informed about new regulations and industry changes. ManCos must attract talent with expertise in investment management, regulatory requirements, and diligence backgrounds.
- Building Scale via Robust Frameworks and Technology: ManCo diligence requires a complex oversight and monitoring framework, often involving the diligence of multiple service providers. ManCos are increasingly investing in technology solutions to manage these requirements efficiently, including systematic data collection, centralization of records, workflow automation, and risk assessment. Super ManCos, providing both AIFMD and UCITS ManCo offerings, serves as a one-stop-shop for asset managers for both retail and institutional cross-border distribution, emphasizing the need to scale using technology.
The ManCo Growth Strategy:
Regulatory compliance, as outlined in AIFMD, UCITS, Irish CP138, and Lux CSSF Circular 18/698, is crucial for management company due diligence. Adhering to these regulations and best practices helps safeguard operations, protect investors, and enhance reputations in the financial industry. Technology plays a crucial role in documenting a robust delegate selection and ManCo oversight process, empowering conducting officers, and delivering scale.
For more information on how DiligenceVault assists ManCos, third-party ManCos, and Super ManCos in delegating oversight and diligence of service providers, request a demo.