Like many EU Directives in the area of financial services, AIFMD and UCITS provide for certain passporting rights allowing properly authorised entities established in one EEA Member State the facility to carry out their services in other EEA Member States without the need for a separate authorisation.
Ireland has a long-established reputation as one of the EEA's leading fund domiciles for cross-border distribution. However, increasingly international fund sponsors are looking to Ireland for cross-border management company solutions in addition to fund products.
As a result, and to support the operation of EEA authorised UCITS and AIFs, many international fund sponsors establish management companies ("mancos") in Ireland. It is notable that 16 of the top 20 sponsors of Irish authorised funds (ranked by AUM) (i.e. 80%) operate or are currently in the process of establishing a manco in Ireland.
There are a range of factors driving the preference to use an Irish manco (rather than establish a self-managed/internally managed fund or use a UCITS management company/AIFM located outside Ireland). Some of these are considered below:
Irish Mancos (UCITS Management Companies or AIFMs) – Key Factors to Consider
|Wide scope of permitted activities||
An Irish manco can obtain authorisation as: (i) a UCITS management company; or (ii) an AIFM; or (iii) a dual authorisation, i.e. both UCITS management company and AIFM.
The manco can also extend its licence to perform MiFID individual portfolio management functions (management of non-fund portfolios, investment advice etc.).
|Services can be passported pan-EEA||All the above authorisations (UCITS management company/AIFM (management and marketing) and MiFID services) can be passported throughout the EEA on either a freedom of services or branch basis.|
|Ability to service all major fund types and investment strategies||They can also cover the full scope of AIF and UCITS strategies (from retail equity and bond funds to sophisticated hedge, real estate and private equity strategies).|
|Efficient and dependable regulatory approval process||Approximate three to four month authorisation timeframe from initial submission of draft documents.|
Irish mancos which qualify as trading companies are generally subject to corporation tax at 12.5% (positions Ireland well for the passporting of services by such companies pan-EEA).
Ireland has a "substance" focused transparent tax regime aligned to the OECD BEPS principles and therefore robust from a European and Global Tax perspective.
Regulatory capital requirements apply to the manco but will not then apply to the funds managed.
Minimum regulatory capital required: the greater of (i) €125,000 plus the greater plus 0.02% of AUM over €250m; and (ii) one quarter of fixed annual overheads. Amount is subject to a maximum of €10m – or €5m where the firm is subject to a suitable guarantee.
Additional professional indemnity cover required for AIFs managed.
|Fully regulated investment firm||Organisational requirements and conduct of business rules apply, akin to MiFID.|
Substance/delegation No express requirements on type of staffing model to be applied.
Discharge of functions and delegation structure considered on the basis of qualitative criteria.
Irish mancos are permitted to delegate key functions out of Ireland to EEA and global based entities. It is common for such delegation to include tasks such as portfolio management, risk management, certain administration activities and distribution.
The Central Bank of Ireland ("Central Bank") has a clear and fast-track procedure for approving delegates who are authorised by other EEA competent authorities or globally recognised counterparts (including the major regulators in the US, Asia, EMEA region, LatAm and Australia).
The manco structure can also easily facilitate adding future
substance, if required, where there are business/commercial reasons
to do so.
|Fee model flexibility||
The manco may assist in developing a fee model for a fixed ongoing charges amount with the balance of the fee retained (after fees/expenses of other service providers discharged).
Specific Factors Supporting a Super Manco
|Multi-fund and/or dual authorised||One manco can support a range of different fund structures,
avoiding the need to have a separate manco or internally managed
aspect to each fund range.
Also, as mentioned above, one entity (referred to as a 'super manco') can obtain dual AIFM and UCITS management company authorisations and also extend its licence to perform MiFID individual portfolio management functions.
|Timing not affected||No additional timing factors when seeking dual authorisation (relative to an application for a UCITS management company or AIFM only).|
Single regulatory manual and framework
|Super mancos only need to produce one regulatory manual (combined UCITS business plan/AIFMD programme of activity) across UCITS/AIF business lines, and are subject to a consistent regulatory framework based on the Central Bank's (now aligned) six key management functions1.|
|Operational efficiencies (ongoing)||Mancos which service multiple fund ranges can centralise functions at manco board level – although corporate funds still require a board (but can have directors in common with the manco) and have certain reserved powers, for example, approving accounts.|
|Regulatory efficiency (ongoing)||Having a manco servicing multiple fund ranges means there needs to be only one regulated entity (rather than one per fund range). This centralises the Irish governance obligations – requiring one single set of 'designated persons' to assist in discharging the Central Bank's six key management functions. There will also be efficiencies when updating the single UCITS/AIFMD regulatory manual or making other required regulatory changes.|
|New product approval efficiency||Extremely efficient model for launching new product ranges: only product approval required, no need for any further manco-related approval.|
Central Bank Authorisation Process
The information required in order to apply for authorisation includes detailed information on:
(a) Ownership details – standard type due diligence on all group entities with a direct/indirect holding of more than 10% in the applicant manco (with specific requirements depending on the type of entity).
(b) Financial projections – three-year projections reflecting fees/revenue, all costs and expense and demonstrating financial viability to be sustained.
(c) Regulatory capital – to be calculated based on AUM and amount to be placed on account for the applicant manco.
(d) Regulatory manual, compliance and operations – along with regulatory manual (combined UCITS business plan/AIFMD programme of activity), UCITS/AIFMD policies and procedures are required. Maples and Calder can provide tailored templates.
(e) Board composition, board support and designated persons to be determined in light of finalised CP86 measures and the client's own governance protocols.
How Can Maples and Calder Help?
We have extensive experience advising on the establishment, ongoing operation and passporting of Irish authorised mancos.
We have recently obtained authorisation for a number of dual authorised super mancos under the Central Bank's new six key management functions and have developed framework documents in line with the Central Bank's new requirements.
We have developed a range of Central Bank-endorsed AIFMD/UCITS compliant policies and procedures to supplement the terms of a typical business plan/programme of activity. Policies include those relating to: remuneration; delegation; valuations; anti-money laundering; best execution; order handling and order aggregation; complaints handling; inducements; personal transactions; accounting procedures; business continuity; recordkeeping; electronic data processing; risk management; exercise of voting rights; and conflicts of interest.
We have acted on some key firsts in this area, including:
(a) The establishment of the first UCITS management company authorised following the introduction of the enhanced management company regime in the UCITS IV Management Company Directive;
(b) The first UCITS management company passport approved by the Central Bank;
(c) The authorisation of the first Irish AIFM to successfully apply for a cross-border AIFM management passport; and
(d) The authorisation of the first Irish super manco to operate with a single regulatory manual across both UCITS and AIF business lines.
The Maples group offers a range of ancillary services to support mancos – including registered office/company secretarial, money laundering reporting officer, compliance officer outsourcing, tax registrations and ongoing filings, and provision of designated person support to mancos.
1 Regulatory compliance; fund risk management; operational risk management; investment management; capital and financial management; distribution.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.