In the asset management industry, international development rhymes with Luxembourg
To develop abroad, the domestic funds passport is not always enough. The Grand-Duchy is still unavoidable in many cases.
At a time when the French asset management market continues to lose further ground (outflows of 13.3 billion euros in 2012, the sixth consecutive year), international development is becoming increasingly necessary. “French asset management companies are facing a real challenge to attract foreign capital, but they have real advantages”, notes Guillaume Eliet, Deputy General Secretary with responsibility for asset management at the French Financial Markets Authority (AMF).
Following the lead of Carmignac Gestion, where 75% of the firm’s assets under management now come from abroad, the movement is gathering pace. A survey conducted by the French Asset Management Association (AGF) underscores this fact. Assets managed on the French market on behalf of non-resident clients now represent more than 350 billion euros, i.e. 13% of assets managed.
Historically, this development has been pursued via Luxembourg-incorporated Sicavs with sub-funds. That was the route followed by Amundi, Axa IM and BNPP IP, although the recent successes outside France of Carmignac Gestion and Financière de l’Echiquier were achieved using funds incorporated under French law. “It is a valued and recognised label”, explains Guillaume Eliet. Proof of this is the number of French incorporated funds registered throughout the world at the end of 2012: 2,700 (+20% over one year). At first sight, this development seems to have been facilitated by the UCITS directive and the future AIFM Directive. “The UCITS passport (since July 2011) has clearly brought improvements”, notes Stéphane Janin, Director of the International Affairs Division of the AFG. One of these improvements is that it has facilitated the registration of funds in the European Union since the procedure is now handled between regulators, whereas previously it was the management company’s responsibility to accomplish the formalities with the target country’s regulator.
Unfortunately, however, it is not quite as simple afterwards. “Any amendment to the prospectus must be notified to the country’s regulatory authority by the management company itself and not by its regulator as for the initial passport”, adds Stéphane Janin. But above all each market has kept its own rules for the marketing of funds to the general public. “We still have to apply to the local regulator for authorisation to sell funds to retail clients”, notes Stéphane Toullieux, CEO of Financière de l’Echiquier.
Then, and above all, Paris as a financial centre suffers in comparison with centres which have historically had a more international profile, such as Luxembourg and Dublin. For some observers this is simply a marketing story. “In Luxembourg, by a stroke of genius, they succeeded in convincing the whole world that in order to sell European funds they had to go through Luxembourg,” notes Stéphane Toullieux. Apart from their greater experience in distributing products outside their domestic markets, Luxembourg and Dublin do not have more to offer than Paris which offers “the same quality of service, and often cheaper and quicker”. Worse, the Luxembourg regulator is sometimes accused of being too permissive. Madoff in 2008, Pettercam more recently (a problem linked to a bond fund prospectus) : in its willingness to seduce international funds, Luxembourg is not strict enough, according to some.
An international ecosystem
However, the figures speak for themselves: according to the specialists, approximately 70% of European cross-border funds are domiciled in Luxembourg and 20% in Dublin. Paris comes a long way behind with 10%. “There is greater tax and administrative stability in Luxembourg”, confirms Patricia Kaveh, Director of Business Development at Henderson Global Investors France. The Grand-Duchy’s multilingual, international culture and administrative simplicity are unanimously recognised. “The teams there have a good knowledge of all countries, regulations and taxation, points out Nicolas Calcoen, Chief Financial Officer at Amundi. Any ecosystem is built around this international dimension.” If, on average, the AMF approval procedure takes twenty days (which is considerably shorter than in Luxembourg), the Luxembourg Sicav, with its sub-funds, has a cela advantage. “Once the Sicav has been created, the accelerated opening of sub-funds in Luxembourg becomes a formality”, explains Pascal Koenig, a Deloitte partner with responsibility for the asset management unit.
In addition, “when you want to work with major distributors, such as private banks, you need to have funds in Luxembourg”, emphasises Nicolas Calcoen. “All our clients outside France are connected to Luxembourg, adds Patrick Rivière, CEO of La Française AM, which has opted for this solution, as well as Sicavs incorporated in Luxembourg. It is a strategic commitment; the system is simple, standard, familiar to all investors and immediately operational.”
Outside Europe, Luxembourg is almost systematically seen as the UcitsS brand. Specialists estimate that between 60%-80% of Ucits funds marketed in Asia are Sicavs incorporated in Luxembourg. Investors are familiar with its procedures and products whereas it is harder to sell French FCPs (mutual funds). Several management companies have run into trouble in their efforts to do so and are now planning to opt for Sicavs incorporated in Luxembourg.
There are other ways of playing the Luxembourg card. First, by opening a Sicav: “We have historically chosen Luxembourg for our international strategy, says Joseph Pinto, Head of Marketing and Investment Strategy at Axa IM. We have a Sicav there, namely Axa World Funds, in which we create new sub-funds according to our needs.” This strategy tends to be reserved for large structures.
Arnaud Perrier, Business Development Manager at Rothschild & Cie Gestion confirms this: “Opening a new range in Luxembourg is not obvious. We are not a large group subsidiary which could invest in the fund or distribute it via its network. This implies launching a fund without benefiting from a performance history.” “Not losing clients or track records of the funds are major challenges”, adds Pascal Koenig. There is another possible solution: opening a feeder fund which will feed the domestic fund (the master fund). Such a feeder can be opened in Luxembourg.
The register’s advantages
Finally, over and above the issue of the vehicle, Luxembourg has a significant operational advantage. The cross-border distribution of funds there is facilitated by the transfer agent’s role (as in Dublin). There is no need, as in France, to open an account with Euroclear. The system has two advantages: it is simpler for foreign investors, as they do not have to “open a dedicated account for the French system with which numerous foreign investors are not familiar”, notes Julien Cuminet, Head of Asset and Fund Services in France at BNP Paribas Securities Services. This enables asset managers to be directly aware of the identity of the end investor or distributor. “This system is less secure since it allows a lag between security movements and cash movements. In France, payment and delivery are made simultaneously but the system facilitates the payment of trailer fees to remunerate distributors”, adds Julien Cuminet.
The proof of the importance of this register is that the management companies which market their funds in the French format, such as Financière de l’Echiquier or Rothschild & Cie Gestion, simply pass through a transfer agent in Luxembourg. Transfer agents based in Luxembourg offer a register entry point to investors; it is then the responsibility of investors to manage the mechanism in Euroclear for access to the French fund. “We have put in place a global distribution platform, the Prime TA, offering management companies a standard operational solution to manage all international orders”, says Laurent Majchrzak, Global Head of Fund Distribution Services at Caceis. At BNP Paribas Securities Services, this solution has been named “Regional TA”. Launched two years ago it now has assets of more than 1.5 billion euros. It has grown rapidly and the largest French asset managers use this service.