Fund Industry Briefing
24th February 2021
Fund Services
Sustainable Finance
Asset Management
Compliance and Litigation
Fund Services
Alter Domus acquires US fund administrator Strata Fund Solutions

Luxembourg fund and corporate services provider Alter Domus has acquired Strata Fund Solutions, a US fund administrator serving private equity and venture capital funds. Founded in 2008, the Salt Lake City-based company has nearly $140bn in assets under administration and more than 200 employees. The deal, which follows the acquisition of Boston-based IPS Fund Services in December, takes the volume of assets under administration by Alter Domus to more than $1trn.

Best source: Paperjam (in French)
IQ-EQ completes purchase of US management services firm Constellation Advisers

Fund and corporate services group IQ-EQ has completed the acquisition of US outsourced investment management service provider Constellation Advisers after receiving regulatory approval, saying the deal furthers its strategy to become a comprehensive service provider to alternative asset managers. Last year IQ-EQ purchased Dallas-based Blue River Partners, which provides back office services to alternative funds. Employing 115 professionals in six offices in the US, Constellation provides  customised solutions to traditional and alternative asset managers and family offices for strategies including private equity, real estate, private credit, venture capital and hedge funds.

Best source: InFinance
TMF Group completes acquisition of Luxembourg-based Selectra Management Company

Fund and corporate service provider TMF Group has completed the acquisition of Luxembourg-based Selectra Management Company from Farad Group after receiving approval from financial regulator, CSSF. Created in 2013 as part of Farad's service delivery platform, Selectra offers management company services to alternative investment funds and UCITS. Amsterdam-headquartered TMF says the acquisition strengthens its market position and will allow it to extend the range of services it offers in Luxembourg.

Best source: Luxembourg Chronicle
Fund services group Carne targets top three ranking among Luxembourg management companies

Ireland-based fund services group Carne says a €100m investment from London-based private equity Vitruvian Partners can help it achieve its goal of becoming one of the top three management company service providers in Luxembourg over the coming year. Carne, which has operated in the grand duchy since 2006, employs around 50 people at its offices in Luxembourg City's Cloche d'Or district. The group serves 550 clients worldwide and oversees $3trn in assets. The investment, announced last week, is subject to regulatory approval.

Best source: Paperjam (in French)
Sustainable Finance
European regulators cut scope of sustainability indicators in final standards for SFDR disclosures

The joint committee of the European Supervisory Authorities has published its final report setting out draft regulatory technical standards for the content, methodologies and presentation of disclosures under the EU’s Sustainable Finance Disclosure Regulation. The SFDR standards aim to harmonise ESG disclosures to end-investors on possible adverse impacts of investment decisions and the sustainability of financial products, covering the climate and environment, social and employment issues, human rights and measures to curb corruption and bribery. The European Securities and Markets Authority, European Banking Authority and European Insurance and Occupational Pension Authority have significantly reduced the number of mandatory sustainability indicators that must be reported under the regulation from March 10, changing others to an opt-in basis and creating separate indicators for investment in sovereigns and supranational debt and real estate assets. The changes have prompted accusations that the EU regulators have backed down in the face of calls from asset managers for a delay in the requirements, although other analysts say the changes acknowledge that data required for some indicators is not yet available.

Best source: Asset Servicing times
See also: Responsible Investor (subscription required)
See also: European Securities and Markets Authority
New Luxembourg body unveils sustainable finance strategy

The public-private association Luxembourg Sustainable Finance Initiative has unveiled its strategy for transitioning the financial sector toward satisfying growing demand for services that meet environmental, social responsibility and governance criteria. The strategy of the initiative, established last year, comprises three pillars of awareness and promotion, unlocking potential, and measuring progress. Created by the government, Luxembourg for Finance and the High Council for Sustainable Development, the non-profit body is responsible for implementing the strategy, helping financial sector participants conduct climate scenario analyses and establishing a monitoring framework to measure progress over time. The initiative will also identify areas for improvement, such as data collection and measurement.

Best source: Paperjam (in French)
See also: Wort (in German)
See also: Delano
See also: Le Quotidien (in French)
Finance Ministry and ALFI rebuff Greenpeace’s criticism of Luxembourg’s fund industry

Luxembourg's Finance Ministry and fund association ALFI have rejected Greenpeace's criticism of the carbon footprint of the country's investment fund industry, saying that the pressure group has misunderstood the role that authorities can play in achieving climate objectives. They argue that a report by Greenpeace that claimed just 4% of the industry's assets were sustainable focused unduly on equity funds, and that the authors ignored the impact of a changing EU regulatory framework and initiatives such as the LuxFlag fund sustainability labelling agency.

Best source: Paperjam (in French)
ESG subscription tax cut set to offset part of increased compliance costs: Quintet’s Vitaline Copay

Since the beginning of this year, Luxembourg-domiciled investment funds can reduce the subscription tax they pay on fund assets according to their sustainability as measured by the EU's upcoming green investment taxonomy. The standard 0.05% tax can be reduced to as little as 0.01% if at least 50% of assets are investments in sustainable businesses. Vitaline Copay, a sustainable investing analyst at Quintet Private Bank, says the tax reduction will enable asset managers to offset some of the extra cost of meeting the new compliance and reporting obligations. Sustainable finance consultant Jane Wilkinson says the tax cut is welcome but is unlikely to be particularly influential in encouraging the domiciliation of funds in Luxembourg nor in promoting investor interest in ESG funds.

Best source: Luxembourg Times (subscription required)
ESMA plans review of compliance with MiFID governance rules

The European Securities and Markets Authority is to conduct a common supervisory action with national regulators this year to examine whether providers of financial products are observing the governance rules set out in the MiFID II legislation. The review will examine how providers ensure that costs and charges are compatible with the needs of the target market and do not infringe return expectations; how providers review the target market and distribution strategy; and what information is exchanged between manufacturers and distributors.

Best source: European Securities and Markets Authority
EU insurance regulator approves compromise on PRIIPs key information document

The European Insurance and Occupational Pension Authority has approved the compromise on the key information document for packaged retail investment and insurance-based products previously agreed by the EU's two other regulators, the European Securities and Markets Authority and European Banking Authority, last July. The EIOPA board approved the measure with a qualified majority just ahead of a deadline set in December by European commissioner Mairead McGuinness to resolve the issue, which has delayed changes to the PRIIPs rules for six months. The compromise maintains the focus on future scenarios but allows providers to refer potential investors to historical information on their websites.

Best source: Börsen-Zeitung (subscription required, in German)
See also: European Securities and Markets Authority
UK to rethink taxation of alternative investment asset vehicles to compete with Luxembourg and Ireland

The UK is looking to compete with Luxembourg and Ireland as it launches a consultation on easing taxation of asset holding companies used by alternative investment funds. The document says the UK's tax rules create a barrier to asset vehicles, especially capital gains tax, which is more favourable in other jurisdictions. London has been losing ground to other European financial locations since the Brexit referendum.

Best source: Les Echos (subscription required, in French)
See also: Financial Times (subscription required)
Investment partnership legislation set to spur fund growth in Ireland: industry group

Legislation creating the investment limited partnership structure for private equity, infrastructure and sustainable energy projects should help lift international assets in Irish-domiciled funds by more than 50% by 2025, to more than €5trn, according to industry group Irish Funds. It also expects the industry's workforce to increase by 25% to 20,000. Ireland has become the second-largest domicile for investment funds in the EU and the third-largest in the world, behind the US and Luxembourg.

Best source: Irish Times
EU regulator launches review of fees charged by fund managers

The European Securities and Markets Authority is investigating whether fund management firms are charging excessive fees as part of its efforts to enhance investor protection. The EU regulator will work with national supervisors over the course of this year to examine whether guidelines regarding charges in the Undertakings for the Collective Investment in Transferable Securities regime are being followed.

Best source: Handelsblatt (subscription required, in German)
See also: European Securities and Markets Authority
European fund industry group recommends changes to make ELTIFs more attractive

The European Fund and Asset Management Association has unveiled a range of proposals to improve the rules governing European Long-Term Investment Funds, which have attracted less than €2bn in 28 funds since the regime's launch in 2015. The industry group recommends creating an open-ended structure alongside the existing closed-ended funds, expanding the scope of eligible assets, lowering the €10m threshold for real asset investments, and removing restrictive quantitative limits. Efama regulatory policy adviser Federico Cupelli says changes are necessary to attract investors to the funds and contribute to the EU's capital markets union.

Best source: International Investment
See also: EFAMA
Asset Management
Banque de Luxembourg merges investment and management company subsidiaries

Banque de Luxembourg has merged its asset management arm, Banque de Luxembourg Investments, with third-party management company Conventum Asset Management from the start of this year. BLI managing director Guy Wagner will head the combined business, which has 60 employees, saying the merger aims to focus expertise and to share the cost of investment in operational, technical and control systems. Assets managed by BLI in more than 30 funds amounted to €13.3bn at the end of November, while Conventum oversaw assets of €4.6bn in more than 60 funds at the end of September.

Best source: Luxembourg Times (subscription required)
Tioga Capital Partners announces first close of blockchain-focused Luxembourg venture fund

Tioga Capital Partners, a Belgian venture capital firm focused on blockchain technology, has concluded a first fundraising round of $17m for its Luxembourg-domiciled blockchain fund Tioga Capital. The fund has received investment from several Belgian family offices, independent technology investors and the Regional Investment Company of Wallonia. A second, larger fundraising round will be conducted later in the year.

Best source: Paperjam (in French)
Asset managers should be wary of illiquid assets despite pressure on returns: Union Investment

The low-interest-rate environment should not push asset managers to invest in illiquid assets, argues Christian Kopf, head of fixed income and currency at Germany's Union Investment. Noting that higher yield also implies higher risk, Kopf says it is often possible to achieve the same yield by investing in liquid assets. He argues that client needs should be the main priority in any consideration of illiquid assets, as managers have a duty to maintain genuine liquidity as well as expected returns, but expects illiquid assets to be an even greater investment focus this year as pressure for returns grows.

Best source: Citywire
Compliance and Litigation
Luxembourg investment funds failing to register beneficial owners, say OpenLux researchers

More than 80% of Luxembourg private investment funds surveyed in an examination of the country's public beneficial ownership register failed to declare their ultimate investors as required by law, making the €4.97trn industry a black box for potential money laundering, according to a report by the Organized Crime and Corruption Reporting Project. The OpenLux investigation, conducted by journalists from media including Le Monde, Le Soir, the Miami Herald and Süddeutsche Zeitung in co-operation with Transparency International and the Anti-Corruption Data Collective, examined four million documents on 260,000 companies. The authors of the report acknowledged that the absence of reporting by most funds on their beneficial owners could reflect the fact that no investor met the threshold of holding more than 25% of shares or voting rights.

Best source: Reuters
See also: Sueddeutsche Zeitung (in German)
See also: Miami Herald
See also: Le Monde (in French)
LFP I sues CSSF for alleged negligence over investor losses in sub-funds

Umbrella fund LFP I is suing the CSSF in Luxembourg's commercial court for gross negligence, seeking nearly €100m in damages to compensate investors for losses from the Aventor, Blackstar Commodities, Columna Commodities and Equity Power sub-funds, which the suit describes as Ponzi schemes. The case, brought by the umbrella fund's board before it was voted out by shareholders last month, claims that the CSSF denied the former directors access to key documentation such as bank records and past correspondence between the fund and the regulator. Lawyer Albert Rodesch, representing the CSSF, says the action is inadmissible in its form and merely a publicity stunt.

Best source: Luxembourg Times (subscription required)
German court documents shed new light on Luxembourg role in cum-ex transactions

German court documents have revealed in greater detail the involvement of Luxembourg-based entities in cum-ex dividend-stripping transactions, through which participants fraudulently claimed refunds for dividend tax they had not paid. Some transactions involved two Luxembourg specialised investment funds, Sheridan and Sheridan Solutions, which provided funds to conduct cum-ex deals. The documents indicate that in July 2014 the Cologne Public Prosecutor's Office unsuccessfully asked the grand duchy's legal authorities for assistance in searching the offices of trustees, fund administrators, the Luxembourg business of Hamburg bank M.M. Warburg and regulator CSSF as part of a co-ordinated Europe-wide action on October 14. Insiders claim that the Luxembourg authorities declined to act because of banking and tax confidentiality requirements.

Best source: Reporter (in German, subscription required)