Selecting a third-party AIFM: A comprehensive guide to AIFM services 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 AIFM services 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 provider.
What are third-party AIFM services?
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 AIFM providers. The third-party AIFM will fulfil all the duties required by AIFMD, including AIFM governance and oversight and AIFMD reporting requirements.
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 the right third-party AIFM provider can support the full lifecycle of a fund. With a wide range of third-party AIFM services available, it can be difficult to decide which licensed AIFM provider is right for your operations.
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, some outsourced AIFM solutions are more bespoke, 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 third-party AIFM?
At Ocorian we specialise in certain alternative investment fund asset classes such as private equity, real estate, infrastructure, and private debt. So it is important to know that there are these specialised third-party AIFM services 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, including AIFM governance and oversight.
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, AIFM risk management 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 faster responses to queries for investment managers and those seeking outsourced AIFM solutions.
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) and 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 provider 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, including AIFMD reporting requirements.
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 provider with subject matter expertise and experience working in those areas, specialised third-party AIFM services, and experience working in those areas.
Can your AIFM provide additional services?
Yes, of course. There are a wide range of AIFM services and outsourced AIFM solutions that firms can provide but it can be subject to what they’ve been approved for by the regulator.
Other services might include:
- Fund Oversight and AIFM governance
- Directorships
- Fund Registrations
- Investment restriction monitoring
- Risk limit monitoring and AIFM risk management
- 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 fund administrator and depositary services best 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 provider, 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, third-party AIFM provider, prioritise clear communication from the outset.
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 guide first-time investment managers through complex service-provider relationships, local regulatory expectations, and the required AIFM governance and oversight needed for 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, supported by specialised third-party AIFM services.
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 AIFM risk management 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 through AIFM services, fund administration, and depositary services.
Find out more about Ocorian’s AIFM services or contact the team to discuss your requirements.
