Luxembourg has a promising potential to further build on its global hub status for investment funds by encouraging management companies to vertically expand their businesses into international fund distribution, according to Xavier Parain, CEO of FundRock, Luxembourg’s largest third-party manager of investment funds in an Investment Officer podcast.
Fund distribution “for me can be a new area, of course, for manco business, where we can help our clients to distribute the funds by providing technical solutions to plug the fund into distribution channels,” he said. “We believe that for Luxembourg, it can be key to create this ecosystem of distribution companies where you can add value.”
Parain said regulators can help the fund business by reducing the time it takes to bring a new fund to market to three months, instead of six months at present, said Parain, who earlier in his career worked for seven years as Managing Director Asset Management at French financial supervisor Autorité des Marchés Financiers.
“A focus on the timeline can be a great value-add for our clients. Three months can be a good improvement,” he said during a podcast interview with InvestmentOfficer Luxembourg.
New name in the market since 2015
FundRock oversees some 120 billion euro on behalf of the 90 asset managers it has as clients. It is a unit of global fund services group Apex, which also owns Luxembourg management company LRI Invest. FundRock was created after French venture capital firm BlackFin Capital Partners in 2015 acquired the Luxembourg business of Royal Bank of Scotland. Apex bought FundRock from BlackFin in October 2020.
“So in 2015, the name FundRock was new in the market, created from scratch,” said Parain, speaking in the FundRock offices on the south side of Luxembourg town, about 10 kilometers north of the French border.
“The idea was to switch from a pure Luxembourg player - RBS Luxembourg was really focusing on Luxembourg funds - to a pan European player. It’s what we did with Blackfin, between 2015 and 20. And, yes, I believe that we were very successful in this period, because we are at the end, we are number one, in Luxembourg, as third-party manco.”
“One year ago, there was a change of shareholder. We are now part of Apex Group. And with Apex the idea is to replicate our business model, not only in Europe. In Europe, we are now not only in Luxembourg, but in Ireland, in France, in the UK, and able to create local funds.”
Moving global
“With Apex Group we are now moving to other countries where the fund business is strong and where there is strong demand for local solutions from our clients. First is Abu Dhabi, where we are already live. We are very close to having an authorisation in Singapore. And we are looking out to Japan, Brazil and Australia.”
Back in Luxembourg, FundRock has recently created FundRock Distribution, as a MiFID entity subject to regulation by the Luxembourg’s financial supervisor CSSF.
“With this, we have a toolkit to help our clients to raise assets and to distribute their fund in the proper way in Europe,” he said, adding that this construction helps overcome the complexity that requires fund distributors to deal with different approaches to national regulation in a European market with multiple different national jurisdictions.
Funds ‘not fully alive’
Such multi-country fund distribution service is particularly appealing for non-European fund managers who wish to access the European market. Distribution is not yet a fundamental part of the asset services business model, said Parain, as management companies were purely focused on creating funds, obtaining a product passport, and helping raise assets.
When it comes to the distribution, many funds are only distributed in a handful of countries. “When all this is done, the fund is not fully alive,” he said. “Usually funds, even if they are passported in 20 countries, are distributed in one, two maximum three countries.”
This means, said Parain, there is an opportunity to improve the manco business model by integrating distribution as a vertical pillar.
Global campaigns
“I believe that there is room for improvement to create global campaigns of distribution. That is where we want to add value. It’s a strategy that is a very classical one: vertical integration of services. Starting from the manco business, we are doing vertical integration to add value by implementing not only risk management, but also value add around distribution.”
“We believe that Luxembourg and the manco business can help a lot of clients into distribution services,” he said.
“And of course for the margins of distributing a fund product. Distribution is where you can find very high margins.”