The Dutch regulator, the Dutch Authority for the Financial Markets (AFM), has investigated managers who use an exemption from the licensing requirement in the Dutch Financial Supervision Act (Wft) and only fall within the scope of a registration requirement. These are the “small” managers (the “light managers”) who, in short, can offer holdings in investment institutions provided the assets under management (AuM) do not exceed 100,000,000 euro or, in case leverage financing is not used and the investment institution is closed-end, a maximum of 500,000,000 euro.
In principle, these managers could previously only offer their services to professional parties, but through the “retail top-up,” light managers can also access the Dutch retail market. While only Dutch managers were eligible to be light managers in the past, an amendment to Section 2:66a of the Wft (adding paragraph 8) now allows foreign managers based in the European Union to qualify for the registration regime, provided they only target professional investors.
In addition to the registration requirement, light managers must meet a reporting obligation: they must regularly provide the regulator with information about the instruments traded, risk positions, and concentrations of managed investment institutions. Furthermore, there is a reporting obligation if a light manager no longer meets the registration requirements (e.g., exceeding the permitted AuM). In such a case, a light manager must apply for a licence within 30 days.
Popularity of light managers in the Netherlands
The AFM included six EU member states in the investigation: Belgium, Sweden, Austria, Germany, Ireland and France. It is noteworthy that Luxembourg, as “fund jurisdiction no. 1” was not included in the survey but Ireland is a close second in that respect. In the Netherlands, light managers are very popular. In fact, in 2023, of the EU member states surveyed by the AFM, the Netherlands had the most light managers.
Between 2019 and 2023, the number of light managers increased by 50 percent which seems to have come at the expense of the growth in the number of licence holders, which remains at 15 percent. It is remarkable that a large part of the deposits in institutions managed by light managers come from abroad. The AFM notes that it is apparently attractive for light managers to operate from the Netherlands, which the AFM finds particular because the registration regime does not have a European passport attached to it.
Indeed, this would mean that when offering units in the European Union, a light manager will face some a regulatory hurdle because the regulations in the European Union are harmonised and units in a Dutch investment institution, managed by a light manager, for example, would not be allowed to be offered in Greece without further requirements.
We suspect that the choice of the Netherlands to establish a light manager is driven mainly by tax aspects and the availability of the legal form “fund for the joint account” which is generally seen as flexible and tax-friendly. We remark that light managers may not limit the offering of units to the European Union: also outside of that, this can also be done (subject to local rules, of course, but these are sometimes absent) whereby showing a Dutch registration (“onshore appearance”) can be helpful.
Retail and light operators
In the Netherlands, a light manager may also offer to retail investors, albeit subject to the retail top up . This is not allowed in every country: in Ireland and France, for example, offering to retail by light managers is prohibited.
In the other four countries surveyed, the rules for attracting retail investments appear stricter than in the Netherlands. In the Netherlands, the AFM survey even reports, a large part of the invested capital of light managers comes from retail investors: 56 percent whereas for licensed managers it is only 3 percent.
AuM of light managers
The AFM sees an increase in AuM in all member states covered by the survey. In absolute terms, the increase is greatest in Germany and the Netherlands, but the Netherlands is also in the lead in percentage terms. Looking at the average AuM per light manager, it is striking that the Netherlands, with a total AuM of 23.8 billion euro (2022), is only ahead of Germany (Ireland certainly lags behind, there are few light managers there).
It is noteworthy, however, that the AuM of the light managers in the Netherlands, compared to the other Member States surveyed, is quite small: in 2022, there was an average AuM of 40 million euro per light manager (for all managed institutions) and an average AuM of 17 million euro per institution. This will undoubtedly be due to the strong retail component.
Conclusion
Other than facts, the AFM does not draw any specific conclusions from the study. We think that the attractiveness of the Dutch registration regime is mainly shaped by (i) the ease of market entry for retail investors; (ii) tax aspects; and (iii) the international reputation of the Dutch jurisdiction. The fact that licence holders lag behind could also be due to the fact that in the Netherlands, compared to e.g. Luxembourg and Ireland, there is relatively little flexibility regarding types of investment institutions and associated possibilities of supervision.
We do think it would be worthwhile to check where, especially foreign, light managers offer their units, especially if outside the European Union.
Jan Saalfrank is a partner for investment funds at Pinsent Masons Luxembourg. Lous Vervuurt is a solicitor at Pinsent Masons and advises clients on financial regulation and compliance with anti-money laundering legislation. The law firm is part of the expert panel of Investment Officer.