Selecting a third-party AIFM: A comprehensive guide for investment managers
We recently sat down with Kevin Curtis, Head of AIFM Oversight – Dublin, to answer some common questions about selecting an AIFM, including the types of third-party AIFMs available, the benefits of selecting a more specialised third-party AIFM, and the requirements and considerations investment managers should keep in mind when selecting an AIFM.
What is a third-party AIFM?
AIFM stands for Alternative Investment Fund Manager. A third-party AIFM is a regulated legal entity responsible for, at a minimum, the portfolio management and risk management of one or more Alternative Investment Funds (AIFs), acting on behalf of an, or several, investment manager(s).
Put simply, an AIFM is a management company whose business is to manage alternative investment funds. These will be typically run by outsourced companies. The third-party AIFM will fulfil all the duties required by AIFMD.
What types of third-party AIFMs are available?
So, there is currently a wide range of AIFMs and Management Companies available.
Selecting the right Alternative Investment Fund Manager (AIFM) is crucial for investment managers as they will assist with the full lifecycle of a fund, but with a wide range of AIFMs available, it can be difficult to decide which one to choose. It may depend on the scale of your operations as to which one is the right one for you.
Third-party ‘Super ManCos’, which manage both alternative funds and UCITS funds, might have dozens of investment management clients and funds under management. At the other end of the scale, you have the more bespoke AIFM, servicing a small number of investment managers, perhaps specialising in a particular range of asset classes. Large investment managers may also have their own proprietary ManCo to manage in-house funds.
Can you give an example of a specialised AIFM?
At Ocorian we specialise in certain alternative investment asset classes such as private equity, real estate, infrastructure, and private debt. So it is important to know that there are these bespoke offerings to consider, as well as just looking to the larger houses which might initially appear to tick all boxes.
What are the benefits of selecting a more specialised third-party AIFM?
Expertise is the real benefit as the regulations around certain asset classes can be quite complicated. You may have the larger Super ManCos, which work with a large variety of fund types and investment strategies. More bespoke management companies may often have a more intricate knowledge of the specific regulations in place, and the complexities that may need to be considered before an alternative investment fund launches.
There are huge expectations from the Central Bank of Ireland around how these funds are managed and governed. For example, there are certain risk limits, investment restrictions, and asset class niches that need to be considered and monitored. If an AIFM is working with these strategies and fund types day in and day out, I believe it offers that level of expertise and subject matter expert knowledge to potential investment managers that you may not get elsewhere.
What are the disadvantages of using third-party Super Mancos ?
Third-party Super ManCos and larger AIFMs may have a vast number of clients, so at times, potentially you may not be their top priority. However, goes without saying that many of the larger ManCos are very good at what they do and may be suitable for large-scale projects and more straightforward fund strategies. On the other hand, bespoke AIFMs can offer a more personal touch, prioritise your needs, and provide speedy responses to queries.
What are the requirements of an investment manager when selecting an AIFM?
The AIFM will assist with the full lifecycle of a fund. From the fund onboarding process, pre-marketing (if required) & marketing, and assisting in the production of the necessary fund documentation and fund registrations. As the investment manager, you will need to provide a lot of information regarding the fund, the planned strategies, the target markets, target investors etc. Additionally, the AIFM will work with you and the administrator to compile financial statements and manage the operational and regulatory aspects of the fund that will arise throughout the fund’s course of business.
What should an investment manager look for when selecting third-party AIFMs?
I think it primarily comes down to your own specific needs and requirements and also the needs of your investors. If you’re launching a ‘vanilla’ standard fund, you can certainly opt to choose any of the big AIFMs or Super ManCos as they could easily meet your requirements. But my advice would be that if you have more intricate investment strategies or asset classes, like real estate or private equity, you should look for an AIFM with subject matter expertise and experience working in those areas.
Can your AIFM provide additional services?
Yes, of course. There are a huge range of services which firms can provide but it can be subject to what they’ve been approved for by the regulator.
Other services might include:
- Fund Oversight
- Directorships
- Fund Registrations
- Investment restriction monitoring
- Risk limit monitoring
- Pre-marketing and marketing
- Delegate oversight - due diligence
- Valuations
- Minimal capital monitoring and reporting
- AIFMD regulatory filings/Annex IV Reporting
- Financial statement reporting
Can an AIFM provider also provide other services such as fund administration and depositary services?
Third-Party AIFM providers and fund administrators are normally separate legal entities and have separate licences. The Depositary must be independent. However, in many cases the AIFM provider could certainly assist an investment manager with their service provider selection and help choose the administrator and depositary suited to their specific needs. In 2021 when the Ocorian AIFM was authorised by the Central Bank of Ireland, we also launched a fund administrator and a real asset depositary, enabling Ocorian to offer a “one-stop-shop” solution to investment managers which is a very convenient offering.
What is a one-stop-shop fund solution for investment managers?
A one-stop-shop solution for investment managers means that a single provider, such as Ocorian, can offer multiple services such as AIFM services, fund administration, and depositary services. Ocorian, as mentioned above, now has the ability to offer this solution, making them a one-stop-shop solution for investment managers.
What advice would you give first-time investment managers coming to Europe using an AIFM for the first time?
Before selecting an AIFM, ensure that the one you are going to choose will be a good fit. A good relationship between the investment manager and the management company is the key to success. Once you have chosen, then prioritise communication with your AIFM.
Do not be afraid to lean on your AIFM for guidance through the entire fund lifecycle. The AIFM will have a lot of knowledge and experience about local markets, jurisdictions, and their specific requirements. AIFMS can help manage and guide you through the complex communication lines and interconnected web of service providers, as well as the ultimate required oversight of these service providers that are key to successful operations.
Don't hesitate to ask for any advice and provide as much information as possible to your AIFM to make their job easier, which in turn will make your job as an investment manager run smoother.
What are the benefits of Ocorian AIFM?
Ocorian is a specialist provider of third-party AIFM services for private capital alternative investment managers.
We have extensive expertise in managing private equity, real estate, infrastructure, and private debt funds.
Our AIFM teams are based in Dublin and Luxembourg. By having sector specialists amongst its team, the AIFM can ensure a smooth alignment on investment processes with the fund manager and offer expertise on complex risk and compliance matters.
Additionally, Ocorian is also authorised to provide fund administration services and real asset depositary services.
As a result, we can provide a seamless one-stop-shop solution to help fund managers realise their investment strategies and deliver value to their investors.
Find out more about Ocorian’s AIFM services or contact the team to discuss your requirements.
