One of the key issues constantly monitored and assessed by many non-EU fund managers is whether it makes sense to establish a European Management Company. There are related reasons for such considerations. First, the difficulties associated with utilising the private placement regimes, and second, the recognition that even if or when the AIFMD marketing passport is extended to non-European fund managers, there is likely to be a period of uncertainty of application and approach – and in any case this demands full compliance with AIFMD requirements. As such, establishing a European Management Company may seem the more attractive solution. In this respect, Cyprus offers a vast network of service providers, qualified human capital, and a favourable legal environment for management company domiciliation.
Management Company Platforms
Another solution is the use of Management Company platforms, which are currently the most popular means of gaining entrance into Europe. This trend is on an upward trajectory with the number of platform providers growing in Cyprus and across the rest of Europe.
The platform solution provides investment managers with a fully compliant UCITS/AIFM entity and thus a European passport to market their funds within the EU, without the need to establish their own fund and/or management company substance in an EU Member State. Managers benefit from the efficiencies provided by the pre-existing structure of the platform in terms of sharing costs, existing middle and back office operating models, tried and tested systems and speed to market.
It should be noted, that third-party platforms are generally umbrella fund structures, which allow investment managers or promoters to join the platform by creating their sub-compartment(s), which are dedicated to their own investment strategies.
In addition to the benefits of appointing an external Management Company as listed above, is the added advantage that the non-EU based manager could either appoint a person within the Management Company to manage their compartment or participate in the Investment Committee established for their compartment, or even enter into a sub-advisory/management relationship when joining a platform where the Management Company delegates the portfolio management function back to the manager – assuming that the manager is a licensed entity recognised by the Cyprus Securities and Exchange Commission (CySEC). At the same time, that manager can have their fund marketed in the EU in full knowledge that all the regulatory and compliance requirements are taken care of by the external manager, so that they may focus on running their strategy successfully.