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Magazine Issues » November 2022

Luxembourg Roundtable: In person in Luxembourg

Experts weigh in on key investment issues in Luxembourg, touching on private assets, ESG and regulation.


Emmanuel Gutton, Director of legal and tax, Alfi
Maren Stadler, Funds partner, Clifford Chance
Claude Niedner, Partner and chairman, Arendt & Medernach
Diana Dumitru, Director, client services – private equity, Vistra
Jeremy Albrecht, Managing director, head of continental Europe, UK and Ireland, client coverage, RBC Investor & Treasury Services
Nicolas Xanthopoulos, Partner, advisory and consulting group, Deloitte Luxembourg

Funds Europe – What exactly is the difference between a fund board and the board of a management company (ManCo)? What are the responsibilities of each and how do they fit together?

Luxembourg, like other fund jurisdictions, has seen intense scrutiny on fund governance in recent years. Fund boards – often staffed by representatives from the fund management companies that promote the funds – are more likely nowadays to have members who are independent.

But this scrutiny has also extended to management companies. Commonly known as ManCos, these are the legal entities that take responsibility for the management of a fund – the fund management in a broader sense than just that of portfolio management. There has been an explosion in third-party – or “outsourced” – ManCos to specialist providers, including fund administration firms.

So, how do the governance duties of a ManCo and fund board differ?

The board of the ManCo is responsible for ensuring that proper fund administration and marketing of a Ucits and/or alternative investment fund (AIF) takes place. The monitoring of portfolio risk management is also within their sphere, said Diana Dumitru, director, client services – private equity, at specialist administrator Vistra.

Governance by the fund board, on the other hand, centres mainly on ensuring fund operations remain in line with a fund’s investment strategy, she said.

“In other words, it is running the oversight of the fund calculation and performance, and compliance with the investment strategy,” Dumitru added.

Jeremy Albrecht, head of continental Europe, UK and Ireland, client coverage, at RBC Investor & Treasury Services, pointed out that the fund board looks to defend the best interests of a fund’s investors – adding that a responsibility of the fund board is to ensure that the ManCo is performing its duties properly.

“The beauty of the model is that all actors provide oversight of each other,” he said.

The fund appoints a management company to take care of all operational and regulatory aspects of a fund, said Claude Niedner, partner and chairman at law firm Arendt & Medernach. A ManCo needs to have substance, to support the main objective of the fund board – which is to protect the interests of the fund investors.

He added that the management company, however, is a service provider to the fund and that the board of directors of the management company is acting in the best interest of the management company.

“Fund board members can be confronted in court for actions initiated by any party involved in the fund.”

Emmanuel Gutton, director of legal and tax at the Luxembourg funds industry association (Alfi), mentioned that a key element is that the management company is appointed by the fund. The board of the management company has to ensure that the management company can accomplish its duties towards the fund on the basis of contractual arrangements. He also said that the fund board is ultimately responsible for any issues towards the investors in the fund.

Nicolas Xanthopoulos, partner, advisory and consulting group, Deloitte Luxembourg, explained that the fund board appoints the ManCo to execute the day-to-day activities. “The fund board is not carrying out the daily activities; rather, they ensure that the ManCo operates the different delegated activities as agreed.”

The fund board remains the main responsible body, he added. “Fund board members can be confronted in court for actions initiated by any party involved in the fund.”

Niedner highlighted one particular responsibility of the fund board, namely the anti-money laundering-related aspects – aspects, he says, “where I believe they are, if I may say so, on the hook … they need to make sure that this is properly applied, and that is a specific responsibility they cannot delegate out”.

Maren Stadler, fund partner at Clifford Chance, said that in Luxembourg, the general partner in a partnership model could delegate all management functions of a fund to the management company – such as fund management and risk, and portfolio management. The general partner keeps the unlimited liability only.

“This is something that has been introduced into Luxembourg law some years ago and may work very efficiently for asset managers, avoiding an allocation of tasks between the general partner and the management company,” she said. “The same applies for FCPs [Fonds Commun de Placement], where all functions are combined within the management company, and no separate fund board exists.”