Accompanying the Irish funds industry’s significant growth in recent years’ (for example, the number of Ireland-domiciled funds grew from 7,252 to 8,693 in the four years between November 2018 to 2022¹) has been a higher-profile role for fund management companies (or FMCs), a primary reason for this being the increasing regulatory requirements they face.
This has led to a significant number of FMCs choosing, as part of their distribution strategy, to either set up their own management companies or appoint a separate entity to undertake compliance, reporting and related activities on their behalf, generally for reasons of efficiency and cost. These are known commonly as third-party management companies.

ManCos and Third Party mancos are used by asset managers and institutional investors to support the infrastructure, oversight and distribution of their funds across Europe. With their growth in numbers, FMCs based in Ireland have felt the increasing pressures of regulatory scrutiny as regulators have sought to ensure that oversight and governance of the funds industry remains appropriate, robust and proportionate.

Key initiatives of this type have included the Central Bank of Ireland’s Fund Management Company Guidance (also known as the CP86 framework) which originated in 2016 but took on significant momentum in 2020 and 2021 with the publication of its ‘Dear Chair’ letters. Published after investigation and consultation with the industry, these highlighted a number of FMCs’ then-shortcomings in the areas of risk management, oversight and resourcing.

CP86 outlines how Irish FMCs are to operate, how they should be staffed, how governance should function and how delegates are to be supervised. It also provides specific guidance on how the FMC substance requirements originally provided in the AIFMD and UCITS fund frameworks are to be observed in practice.

Rise of the Third-Party ManCo
Resulting impacts on FMCs and Self-Managed Investment Companies (SMICs) have included the ‘substance’- related principles to have a physical footprint in Ireland commensurate with their business size and additional prescriptive requirements.

For many specialist managers, this has meant a move to the third-party ManCo model, with a key advantage of this model being that the vehicle is ring-fenced purely for the benefit of managing a fund. This FMC will usually provide all the governance and oversight required to satisfy regulations, including meeting resourcing requirements – allowing a fund manager to focus on their core business of generating returns and managing investors.

In this way, the Irish third-party ManCo has become increasingly important to our industry in offering managers an approved and efficient means of supporting the manufacturing, packaging and distribution of their investment strategies to investors. Many third-party ManCos also provide associated distribution, risk, reporting and other support services that may also be of benefit.

Serving the Third-Party Manco Community
As a provider of asset servicing solutions to investment funds across international jurisdictions, Northern Trust works with a number of third-party ManCos in helping them fulfil their regulatory requirements in either a single or multiple fund domiciles. This role provides us with an asset servicing lens of the industry through which we gain a clear view of the trends impacting ManCos.

We are taking an active role in supporting this fast-changing segment of the Irish funds community. Over the past three years we have established working groups to focus on the requirements for ManCos for incorporating the recommendations of both CP86 and the Central Bank’s later consultation paper on outsourcing (CP138).

As a result, we have collaborated internally and with our external partners to help drive new efficiencies in how our ManCo clients can meet their oversight and governance obligations.

Self-service and Speed to Market
Operational and service provider due diligence are a key priority for clients and ManCos, and to support and satisfy their ongoing due diligence requirements, we created a secure site to function as a single point of contact for directly accessing core materials they should expect to receive from Northern Trust as their administrator and depositary. This enables speed and self-service by providing ease of access to relevant material for ManCos in completing their due diligence reviews of their Northern Trust delegates.

Feedback to date has been positive, with users reporting it is helping replace many of the time-consuming and resource-intensive processes previously involved in the fulfilment of these obligations.

Another example is in supporting ManCo requirements for timely and accurate data to meet their management and oversight responsibilities. Increasingly, this includes sourcing, cleaning and providing the data they require for their management information.

As their asset servicer, our goal is to enable more self-service options and facilitating data delivery in the method most compatible with their business requirements, including through use of Application Programming Interfaces (APIs) – standardised interfaces that allow two applications to “talk” to each other automatically. This is helping facilitate the exchange of information in real-time, rather than via inflexible and increasingly outmoded delivery methods such as file transfer.

Additionally, as third-party ManCos have continued to grow and build their service offering, Northern Trust has partnered with those selected by our clients to ensure an appropriate operating model is established. Key to this is not only being able to fulfil their mandatory regulatory requirements but also to accommodate the manager’s distribution strategy as a foundation for future growth.

Future Servicing Requirements
As we work with fund managers and ManCos to help them structure, launch and manage their funds, we view opportunities on the horizon, such as helping them realise potential for investors via new product launches and strategies. We expect to also support their ongoing adoption of digital technology, where scope exists to help optimise workflows, create operating improvements and generate economies of scale across their businesses.

Across these and other areas, we are excited at the opportunity to work further with Ireland’s ManCo community in helping deliver innovative solutions to support its evolving requirements.