Funds Europe – Has the Brexit rush of firms that have set up entities in Luxembourg put strains on the Luxembourg ManCo/AIFM industry?
Noel – We have seen that in order to manage their regulatory risk, and as a protection against future disruption between the EU and the UK, quite a number of firms have decided to set up a presence in the EU, with Ireland and Luxembourg at the forefront.
Both countries have seen an influx of new management companies and AIFMs. In my view, this influx has created jobs and other opportunities for the industry rather than creating strain.
I certainly do not see that as a significant issue for Luxembourg, but rather something that has contributed to growth and which has been smoothly absorbed by the industry.
Maurier – The growth reinforces the specific role of the depositary, in my view. One should not forget the liability taken on by the depositary in granting trust and security to the underlying investors when asset managers externalise their middle offices, for example.
Ninety-eight per cent of Ucits funds are serviced by a one-stop-shop asset servicing provider that carries fund accounting, TA, custody, depositary and so on. When it comes to alternative investments, that goes down to 78%, so that is to say you’ve got more and more external participants, external providers that are obviously doing their own part of the value chain but ultimately, you’ve got the depositary that is here to provide the safety nets and security of the underlying holdings.
Bechet – When we say the regulator of Luxembourg is pragmatic, flexible and business-oriented, the regulator is in fact actually very tough! I think in terms of the level of regulation we have across Europe, we also sometimes hear that we want to be the number-one jurisdiction with the strictest standards.
Two years ago, there was a famous circular issued about substance requirements of management companies and due diligence – circular 18/698. At the time, the industry said, ‘Hey, this is really tough in terms of requirements.’ Today we are happy that we did that because it’s a gold standard in Europe. The CSSF was commended for having published such a detailed and in-depth circular.
Forelli – To have the gold standard means you have to be very much at the top of your game, and that’s what happened since Circular 18/698 came in and ManCos were asked to review their governance and substance.
M&G recognised soon after the referendum in 2016 that it was wise for us to assume the worst-case scenario and move across certain activities to Luxembourg to protect our clients’ interests regardless of the final outcome of the negotiations. Up until that time, M&G operated under the Oeics [open-ended investment company] regime in the UK, so the determinant was if the Oeics would be Ucits-compliant any longer. Our clients’ interests and our international distribution model and product model would have been put at risk. So, this is why M&G acted immediately.