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At a time when many asset managers are expressing concern about pressure on margins and complex regulatory developments, management companies must find new ways of adapting to a changing environment for both UCITS and non-UCITS structures.
Since the advent of UCITS III, substance requirements have gradually and steadily increased. Market players have adopted various models in response to this evolution, though a common challenge underpins their choices: the increased minimum efficient operational scale for running a UCITS fund, whether via a management company or on a self-managed basis. The introduction of AIFMD not only confirms this trend but extends its application to non-UCITS products.
The CSSF circular 12/546 dated 24 October 2012 sets out the conditions and organisational requirements applicable to UCITS management companies and self-managed SICAVs.
Key substance requirements can be summarised as follows:
- Proportionality: derogations to substance requirements remain possible; however, the conditions under which they can be obtained have been reiterated by the CSSF
- Shareholders: a ‘sponsorship letter’ can be requested by the CSSF, hence reintroducing ‘Promotership’ on a selective basis, with ad hoc guarantee requirements
- Board composition: in addition to professional experience, directors must observe a more detailed and stringent incompatibility regime
- Conducting officers: the new circular provides detailed qualification requirements (experience, location, availability, occupation), including scope and duties. Conducting officers must observe a more detailed and stringent incompatibility regime
- Central administration and internal governance: both expertise and decision-making centres should be in Luxembourg and supported by adequate human and technical infrastructure
- Delegation: delegation and sub-delegation both require prior CSSF approval and due diligence by the management company
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