Luxembourg’s Large-scale ManCos pursue operating models that balance regulatory compliance and operational effectiveness

Press release

Press release

ManCo Survey 2022

“Luxembourg’s Large-scale ManCos need more than ever to pursue operating models that balance regulatory compliance and operational effectiveness to achieve economies of scale”, says KPMG

KPMG Luxembourg today announced the release of the “Large-scale Management Company Survey 2022.” Following the success of its first edition last year, this 2nd release takes a closer look at the driving forces and key strategic priorities of 18 of the 20 largest Management Companies in Luxembourg. These 18 ManCos represent a powerful subset of the 300 UCITS and/or AIFM ManCos in Luxembourg, representing 50 % of the local market and employing more than 1,300 FTEs.

The pandemic and the resulting transformation of the way we work has further fueled the need for ManCos to review and benchmark their operations against the market. In this context, the survey’s objective is to paint a clear picture of how ManCos navigate the challenges to implement lean operating models. 

Alan Picone, Asset Management Risk and Regulatory Leader at KPMG Luxembourg comments on the findings of the survey: “The consolidation of the Asset Management market as well as the pertinent fee pressures force ManCos to continuously refine and adapt their operating model to strike balance between regulatory compliance and operational effectiveness, all while avoiding over-engineering. We’re seeing regulatory scrutiny enforced by the CSSF and the need to preserve competitive advantage to unlock economies of scale both impact ManCo’s governance arrangements, delegation strategies and operations. But these challenges are opportunities for the Luxembourgish market to increasingly develop into a Center of Excellence for risk management, compliance and oversight professionals.

KEY FINDINGS:

Evolution of substance in Luxembourg, growth across all functions

Growing regulatory scrutiny on governance arrangements and local substance by the CSSF (CSSF Circular 18/698), as well as an increase in business volumes and complexities of ManCo operations, have increased the demand for Asset Management professionals. In this context, our survey reveals that, on average, ManCos have increased the number of full-time-equivalents (FTEs) by 14% compared to last year.

While FTEs in all functions across the ManCo value chain are increasing, there is a particular demand for experienced professionals in core substance functions (risk management, AML/Compliance and delegation oversight). This trend underlies the evolution of Luxembourg into a “hub of excellence” for risk, regulatory and compliance professionals.

Increasing CSSF scrutiny

Driven by the increasing pressure of the European Securities and Markets Authority (ESMA), the CSSF has greatly expanded its on-site inspection program in recent years.

75% of all ManCos participating in our survey had at least one CSSF on-site inspection in the last three years, either general inspections or thematic inspections (e.g. on AML, risk management or IT security).

Interestingly, our survey revealed a paradox between the increasing regulatory scrutiny and the level of preparedness of ManCos. While regulatory scrutiny is at an all-time high, only every other ManCo feels well prepared for an upcoming regulatory on-site inspection.

ESG – a key cornerstone in ManCo operating models

A remarkable 75% of the ManCos participating in our survey responded that ESG represents a key cornerstone of the enterprise-wide value proposition and is likely to become an integral element to business strategy in the coming years.

Already today, almost half of all funds managed by ManCos in our survey are either classified as Article 8 or Article 9 per the SFDR, and a large majority of ManCos expressed the ambition to significantly increase their percentage of funds that promote environmental and social characteristics over the next months and years to come.

Technology to scale delegate oversight is here to stay!

The adoption of technology is a major driver in achieving scalability of ManCo operations. Technology is especially valuable for the oversight of delegated services.

Most notably, we recorded a significant increase in the use of technology assistance for the oversight of distributors. Precisely, 18 of 20 ManCos participating in our survey have implemented technology solutions to reduce the manual workload for distributor oversight.

However, while technology for distributor oversight has been adopted systematically across the ManCos, the oversight of other functions (e.g. portfolio management, fund administration) is still primarily performed manually; according to our survey, only 30% of ManCos use tools to oversee delegates for functions beyond distribution.

For more findings, please visit our full 2022 Large-Scale ManCo Survey.

Wondering how these results compare to the first edition of this survey? Read our 2021 Large-Scale ManCo Survey