Investment Fund Management Companies
The "management" of an undertaking for collective investment (UCI), may involve portfolio management (in line with the investment policy defined in the asset management rules and in the exclusive interest of shareholders), risk management, the administration and marketing of funds as well as certain activities related to the assets of funds.
Since a common investment fund (fonds commun de placement - FCP) has no legal personality, its management must be carried out by a management company. The management company establishes the asset management rules and is responsible for the tasks mentioned above.
UCITS management companies may apply for authorisation as alternative investment fund managers (AIFMs) as provided by the Luxembourg law of 12 July 2013, and vice versa, in order to manage both UCITS and alternative investment funds (AIFs).
Managment Companies' Various Services
Under certain conditions, a management company can also offer portfolio investment management services on a third party, discretionary, basis, to people or entities other than investment funds (for instance, to pension funds) under a mandate by the investors. Thus they are also permitted to act as wealth managers.
As an ancillary service, a management company can offer investment advisory services for a list of financial instruments defined by law, as well as custody and administration services for shares and units in UCIs.
Under conditions laid down by law, a management company may subcontract one or more of these functions to a specialised service provider.
An undertaking for collective investment constituted as an investment company (a SICAV with variable capital or a SICAF with fixed capital) is free either to nominate a management company or to declare itself "self managed".
The Regulators' Request
Any management company with its statutory head office in Luxembourg must be approved by the financial sector supervisory authority (the CSSF). The CSSF will require, among other things, that the management company have sufficient financial means to enable it to carry out its duties effectively and that company managers justify that they are fit and proper (that is, honourable and have the required professional experience) to discharge their functions.
Approval of a UCITS management company by the CSSF is then valid for all European Union member states. The same applies to EU AIFMs managing and / or marketing EU AIFs in the European Union.
A management company established in Luxembourg may be appointed as the manager of a UCI set up under a foreign law. Likewise, Luxembourg UCIs may be managed by management companies established in other EU jurisdictions, or in any country with which Luxembourg has signed a relevant memorandum of understanding.