Dossier spécial Fund Forum 2011

The master-feeder fund structure implies developments and rationalisation

le 23/06/2011 L'AGEFI Hebdo

The system offers numerous local and international opportunities for asset management companies.

The master-feeder fund system introduced by the Ucits IV Directive makes it possible to group together, in a master coordinated UCITS, assets under management, by including several feeder UCITS from different European Union Member States. More precisely, the latter invest at least 85 % of their assets in units of the master fund which, for its part, must include the assets of at least one feeder fund. The system has several advantages, including in particular significant economies of scale, for example by avoiding the traditional fund registration formalities, some advisory and security services and even the production of information documents.

Benefits of a performance history

"We have conducted a study in order to apprehend the possible scenarios in order to optimise our fund management positioning, notes Philippe Leroy, the Head of Raiffeisen Capital Management in France. At the current time, we have a range of approximately 250 funds in Vienna and a Luxembourg registered umbrella fund, which includes for the time being five sub-funds. With Ucits IV, we will be able to create feeder funds, which will benefit at the same time from the performance history and assets under management of their master funds, which are two extremely important criteria in the framework of institutional calls for tenders, plus in some cases a local Isin code."  The Austrian firm can thus consider marketing its funds across the continent and even beyond: "There is demand from Asian investors for Luxembourg registered mutual funds, adds Philippe Leroy. The master-feeder system will make it easy for us to meet this demand while relying on our Viennese management expertise."

Numerous combinations are conceivable. "Up until now, it was not possible to create master-feeder structures between coordinated funds in a cross-border framework. It will now be possible to establish pathways between the ranges of funds under local, Luxembourg or Irish laws ", emphasises Christine Lacoste, Director of Marketing at Natixis Asset Management, who also points out the opportunities at national level as a result of this structure: "We will also be able to go further in the rationalisation of ranges of funds incorporated under local law, in particular those that are distributed via several bank networks."

As a backdrop, priority is being given to proximity and adapting products to client demand. "For some aspects, there is obviously an alternative, namely categories of units in the same fund, points out Brice Henry, a partner in the law firm of Allen & Overy. However, it is not possible with that formula to individualise products and adapt them to local demand by marketing a fund with an Isin code of the country in question and therefore a label easily understood by local investors, tailored charges and, if applicable, a management approach capable of satisfying some specific demands." In fact, in an ancillary way, the master-feeder system also makes it possible to individualise the management approach, since the feeder fund must invest at least 85 % of its assets in the master fund. It is therefore possible to "tweak" a strategy by offering a currency exposure or a specific class of assets.

This opens therefore numerous opportunities. Nevertheless, some issues could dampen the enthusiasm: "Taxation, in particular, may cause problems. As each State is a specific case, some uncertainties remain and asset management companies will inevitably have to deal with some teething troubles. Moreover, information must circulate between the various parties involved, i.e. asset management companies, regulators and custodians" , notes Brice Henry, who regrets that the idea of an EU custodian passport was not pursued: "It would undoubtedly have facilitated things." A possible idea for Ucits V...

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