Third-party Management Companies
A new governance model?
The third-party management company is a familiar concept originating with UCITS. It has taken its next evolutionary step with AIFMD. The traditional model has to evolve from focusing on regulatory compliance to emphasising asset class and actual operations.
Investors have been focusing on the governance of investment funds ever since the unpleasant surprises experienced as a result of the global financial crisis of 2008/09. These included severe write downs in net asset values of funds and securities held by them, delayed payment of redemption proceeds, gating of funds, suspension of redemption rights, counterparty failure and, more extremely, insolvency of the funds themselves.
Many investors, institutional or otherwise, felt that the service providers of funds which found themselves in trouble during the crisis, in particular investment managers and directors—who were tasked with managing and overseeing the funds—could have done more to support the funds in managing the crisis.
Some investors and many prominent political and regulatory figures have even stated that there was a systemic failure of the fund governance model internationally. While such views may or may not be justified in specific cases, and they conveniently ignore how banks, investors, politicians and regulators contributed to the crisis and its handling, there is some degree of truth in the view that those charged with the governance of funds could have done better.