Stockholm (HedgeNordic) – The investment management industry has experienced a gradual increase in regulatory and compliance demands, driven by heightened requirements and expectations from both regulators and investors. To navigate this regulatory environment, some managers have turned to third-party management companies (ManCos) as a strategic lifeline, allowing them to focus on their core competency of managing money.
For nearly a decade, ISEC Services has been offering a comprehensive Swedish-domiciled fund solution, enabling investment managers to streamline their focus exclusively on portfolio management and marketing. In a move to expand their offerings, ISEC Services recently introduced a compelling opportunity for local managers: the ability to launch Luxembourg-domiciled funds within the Reserved Alternative Investment Fund (RAIF) structure. Nordic fund managers can leverage this opportunity by establishing their RAIF-structured funds as sub-funds under ISEC’s SICAV-RAIF umbrella.
“The Nordics is still quite an immature market for third-party ManCos even though this format is very familiar in the rest of Europe,” acknowledges Helena Unander-Scharin, the CEO of ISEC Services. “I believe the ManCo partnership format is an interesting way going forward due to higher barriers to starting a management company as a result of increasing regulations and compliance,” she elaborates. After nine years in the ManCo business with local fund structures and UCITS structure in Luxembourg, ISEC Services made one further step by offering Swedish and Nordic fund managers the opportunity to establish their RAIF-structured funds in Luxembourg.
“I believe the ManCo partnership format is an interesting way going forward due to higher barriers to starting a management company as a result of increasing regulations and compliance.”
Unander-Scharin emphasizes the symbiotic relationship this setup fosters – an advantageous collaboration with a local partner complemented by seamless coordination with service providers in Luxembourg. Outsourcing core alternative investment fund manager (AIFM) functions to a provider of third-party ManCo services such as ISEC Services can prove to be a swift, cost-effective, and compliant route to cross-border distribution. “By establishing ISEC’s SICAV-RAIF umbrella fund in Luxembourg, we wanted to provide Nordic actors with a Luxembourg infrastructure for fund vehicles that are only possible to launch in Luxembourg,” Unander-Scharin explains the rationale behind ISEC’s latest move. Fund managers can benefit from the relationship with a local partner while getting access to great service providers in Luxembourg,” explains Unander-Scharin.
Luxembourg’s RAIF investment vehicle, introduced in 2016, earned its reputation as a game-changer in the European funds landscape. This vehicle offers a flexible and efficient investment structure for alternative investment strategies, spanning equities, fixed income, real estate, private equity, infrastructure, and private debt. This structure offers a short time-to-market by eliminating the need for Luxembourg regulatory approval. Fund managers can, on short notice, launch a product that is not subject to supervision by the Commission de Surveillance du Secteur Financier (CSSF), with full flexibility.
The main advantages of the RAIF structure, according to Unander-Scharin, lie in its rapid time-to-market and flexibility. Fund managers can establish highly adaptable funds, free from limitations on investment focus, strategy, and the types of instruments employed. “Fast time-to-market and flexibility are the biggest advantages of the RAIF structure,” according to Unander-Scharin. “Fund managers can set up a very flexible fund, when it comes to investment focus, investment strategy and types of instruments one can use,” she elaborates.
“Fund managers can set up a very flexible fund, when it comes to investment focus, investment strategy and types of instruments one can use.”
The RAIF, therefore, benefits from a swift establishment process and offers high flexibility in terms of investment strategies. “When it comes to investing, there are no limitations within the fund vehicle. You can invest in physical oranges or cows or real estate or whatever you desire,” says Unander-Scharin. The only limitations, she notes, lie in finding a partner capable of facilitating and administering these diverse assets. “The limitations are the possibility to supervise and provide oversight, as well as finding an administrator and custody to hold the instruments.”
Unander-Scharin also underscores that while the fund itself operates without direct supervision from the Luxembourg regulator, there is effective oversight on the fund with ISEC Services being a supervised AIFM. “While the fund itself is not under supervision from the Luxembourg regulator, it is indirectly supervised because ISEC Services is a supervised AIFM,” emphasizes Unander-Scharin.
Beyond the Nordic Audience with Third-Party ManCos
The choice of fund domicile plays a pivotal role, aligning with the nature of target investors. While some Nordic managers opt for local setups, those eyeing foreign investors or future global outreach often choose Luxembourg as their domicile from the outset. For managers overseeing Swedish-domiciled funds aiming to attract a broader European and global investor base, ISEC Services now provides a reliable pathway through a master-feeder structure.
“This is like renting a subfund model with lower barriers, where you share the cost with other managers.”
Managers running a Swedish-domiciled fund looking to attract European and more global investors and “have a ‘Made in Luxembourg’ stamp” can rely on ISEC Services to launch their Luxembourg-domiciled RAIF funds. “We can help managers set up from a simple structure like a master-feeder to a more complex structure, all under the same umbrella,” says Unander-Scharin. “This is like renting a subfund model with lower barriers, where you share the cost with other managers,” she elaborates. “If a fund grows to a sufficient size, managers have the flexibility to migrate it out from our umbrella by setting a SICAV (Société d’Investissement à Capital Variable) of their own, and subsequently appoint either ISEC or others as an AIFM.”
This is particularly relevant for managers seeking to broaden their investor base. “Some managers already have robust processes in place with Swedish-domiciled funds, but if they want to attract another type of investor, they can set up this as a side business without having to passport their license,” says the CEO of ISEC Services. While Unander-Scharin does not anticipate a significant surge in demand for this offering, she highlights that “the decision to set up a RAIF in Luxembourg represents a valuable avenue for reaching a wider spectrum of investors.”