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Alternative Market Briefing

Recent developments have been good for ManCos

Monday, May 16, 2022

amb
B. G., Opalesque Geneva:

The European funds market may be a complex environment, but ManCos are here to take on the burden of the paperwork and transform most funds into a European vehicle ready for distribution.

In part 2 of this interview, Julian Mayo, head of business development at Universal Investment, a ManCo with offices throughout Europe, explains how recent developments within the fund industry - long-only and alternative - have affected ManCos, what asset managers get from ManCos, and how they view the European funds market. "Our European clients don't want the hassle of doing all the regulatory, legal and compliance work," he says. "Most asset managers really just want to focus on two aspects, asset management and distribution, and outsource the rest."

Julian Mayo will present at the next Opalesque webinar on May 19th: MANAGER WORKSHOP: Market Entry Into Europe Made Easy (details below).

Part 1 of the interview is here.


Opalesque: How have recent developments in the fund industry affected ManCos?

Julian Mayo: The development as a whole has been good for ManCos. A decade ago, you could set up a UCITS fund from the UK, from Asia, or from the U.S. for example, and manage that fund directly. So a Luxembourg fund could be run from almost anywhere in the world.

Because of what is known as 'substance requirements' on the part of the regulators, you now have to have an asset manager physically based in the EU. This was the case before Brexit, but Brexit has been an additional driver for this. Nowadays you cannot run an EU fund - a Luxembourg or an Irish UCITS fund - from the U.S., Australia or from outside the EU. You have to use a ManCo sitting in the EU.

You either set up your own ManCo, which is expensive and entails a lot of legal and business oversight risks, or you use a third-party ManCo like Universal. That is one of the reasons it has been good for ManCos on the long-only side.

Opalesque: What about the alternative fund side?

J. M.: On the alternative side, it has been especially interesting. We are in early-stage development of that industry. If you go back to even 10 years ago, the alts industry was dominated by offshore jurisdictions. Now that is changing because asset managers see the opportunity to raise money from the regulated European marketplace.

Conversely, there has been a demand from clients as well. There is ongoing increasing demand for products which are compatible with the EU, in other words, domiciled in the EU. And they have to have a ManCo or an AIFM.

If you are a hedge fund or a PE fund or a private debt fund in New York or Tokyo, you could set up your own in Ireland or Luxembourg. But do you really want to hire and manage half a dozen people several thousand miles away from where you are based? The answer is almost certainly not. Unless you are a massive firm such as Carlyle or KKR, it is best to outsource that service.

Opalesque: Who are Universal's fund manager clients?

J. M.: Most of our clients are European. Our business was set up in 1968 to service German institutions and asset managers. Over the last 20 years, that has changed with the development of our Luxembourg business. Our client base is generally focused on the continent of Europe. We have a few clients from Asia and North America.

Our European clients don't want the hassle of doing all the regulatory, legal and compliance work. Most asset managers really just want to focus on these two aspects, asset management and distribution, and outsource the rest - again, unless they are a big firm like Schroders or Fidelity.

We do the same for those clients who are based in Switzerland or in the UK as for those who are based in America or Asia. They need to use a ManCo or an AIFM to be able to run those funds.

Opalesque: How is your business is evolving?

J. M.: We are at a stage where we are rapidly internationalising. This is because we are reaching out to areas that we have not really spent a lot of time looking at in the past. We opened an office in London, which is where I am based, only six months ago. We are looking to expand our footprint outside our traditional market that is continental Europe. This means the UK, North America, where I spent a lot of time during the last years in my previous job, and the Asia-Pacific region, where I spent 12 years working in the asset management industry.

Opalesque: What can you do for EU-based fund managers looking to sell outside the EU?

J. M.: Universal can help EU-based fund managers looking to sell in Switzerland. But not so for those looking to sell into the UK. The two countries have different relations with the EU. Looking from the EU outwards, we have the domestic EU structure - the UCITS and the AIFs. Those two products are the gold standard when it comes to international distribution.

UCITS are sellable not just in the EU but also in the Middle East, the offshore US market such as Miami, the domestic markets in Latin America, such as the big Chilean pension funds and institutions in Brazil and Argentina for example, and also Asia, such as the retail banks in Hong Kong and Singapore. UCITS are a very widely known and widely accepted form of investment.

Opalesque: What about the UK market?

J. M.: Within Europe, UCITS are recognised in Switzerland and Norway. At the moment, they are still recognised in the UK. However, that falls under the Temporary Commission Regime, which is a run-off to the Brexit agreements, which means that for the time being you can sell funds that are registered in Luxembourg and Ireland into the UK. However, it is not clear whether that is going to be permitted for much longer. In the meantime, a lot of fund management firms are setting up parallel domestic UK vehicles known as open-ended investment companies, or OEICs.

Opalesque: You said asset managers have polarised views of Europe. Could you expand?

J. M.: People outside Europe looking into Europe often have two polarised views. Some think this is a huge market, the biggest economic bloc in the world, therefore it is a fantastic opportunity. Others say it is not one financial market, it is 27 different markets in the EU plus 17 other countries, therefore it is a bit of a mess and we are not going to bother.

The reality is closer to the first than the second. You have got a generally underpenetrated market. Any US-based fund manager should be looking at Europe as a really interesting opportunity to raise assets. But in order to do that, you need a domestic partner because of the cost and the regulatory complexity, and someone who can help you distribute your funds. You need someone who knows what they are doing, and we are in an excellent position to be that someone.


Part 1 of the interview is here.


Webinar:

MANAGER WORKSHOP: Market Entry Into Europe - Made Easy

Hear from our expert panel:

5. What is the setup of the European market?
6. How does the structuring process for Alternatives work in Europe?
7. How can managers get the best and most cost-efficient guidance through the jungle of regulatory requirements?
8. Case Studies and practical examples

With:

- Dr. Sofia Harrschar, Country Head Universal-Investment-Luxembourg S.A.
- Markus Bannwart, Director, Head of Capital Markets and Fund Structuring Alternative Investments, Universal Investment
- Julian Mayo, Head of Business Development, Universal-Investment Ireland (UK Branch)

When: Thursday, May 19th at 11 am ET / 4pm UK / 5pm CET

Free registration here: www.opalesque.com/webinar/

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