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Management company boards in Luxembourg

Supported by greater regulatory focus, management company boards in Luxembourg are reviewing their composition with greater numbers appointing independent directors for the first time

Unlike in the UK where the fund boards (the authorised corporate director of the authorised fund managers) are responsible for all the funds within the fund family, in crossborder jurisdictions like Luxembourg and Ireland, the governance is usually split between fund boards (usually one board per fund), and – till recently – the lesser visible management company board.

Over the past couple of years, the role and focus of the management company (usually referred to as the ManCo) and its board has been getting quite some attention, especially around its composition as in many instances it moves from largely being an internal board to one that also includes independent directors.

To better understand some of these changes in Luxembourg, FBC sat down with Craig Blair, managing director and board member of Franklin Templeton International Services S.a r.l in Luxembourg, a super management company with Mifid top up license (the Franklin ManCo). One of the most established investment management operating entities in the city state, the Franklin ManCo grew further following the acquisition of Legg Mason and the subsequent merger of its ManCo in Ireland, whose staff are now employed by a branch of the Franklin ManCo, a process of rationalisation used widely by many fund management firms in both jurisdictions. Combined with regulatory changes brought about by Britain leaving the European Union, the Franklin ManCo in Luxembourg is now responsible for 10 branches across Europe and 22 different fund platforms. No small operation.

Split role

For those not entirely familiar with the split role between the fund board and the ManCo board, Mr Blair explains that the fund board, as the name suggests is “ultimately responsible for the best interest of investors.” The ManCo board is appointed “as the primary delegate,” and is responsible to ensure that the requirements and standards laid out in the now well-publicised industry regulator Commission de Surveillance du Secteur Financier’s (CSSF) Circular 18/698 are being met. “Circular 18/698 provides a detailed codification around organisational requirements, substance, AML obligations, delegation, oversight, and the performance of certain activities like portfolio management,” of the ManCo, says Mr Blair, and replaces the CSSF’s Circular 12/546 published in 2012 which dealt with the authorisation and organisation of ManCos.

Board composition and the role of iNEDs

Whilst there has been no lack of exhortation for best practice and good governance from many quarters including the CSSF and ALFI, the Luxembourg fund association, there is no explicit requirement for ManCo boards to have independent directors. Whilst it is an established practice for Luxembourg fund boards to have iNEDs, most ManCos have typically only had executives on their boards. Yes, some ManCos have non-executive directors from group affiliates based in other jurisdictions, which is useful, but is not the same as having independent non-executive directors.

Starting to change

But that is starting to change, as Mr Blair points out. “Over the last few years, there has been a growth in ManCo boards looking to appoint independent directors,” something Franklin Templeton is also in the midst of doing for their own ManCo. “We have relied on iNEDs on our fund boards for many years and having them on our ManCos will be very beneficial as we take that next step in terms of corporate governance.” Mr Blair is clearly a supporter of more independence on ManCo boards, saying they bring a “fresh perspective” in an industry that is undergoing very fast-paced regulatory change. “They will be very valuable in the overall evolving role of the ManCo,” he says.

The outsourced model

No discussion on ManCos can be complete without talking about the outsourced model or the third-party ManCo, which is getting a lot of attention on account of the recent waves of industry consolidation and M&A. Mr Blair agrees that “the outsourced model is definitely a growth area,” and believes they have an important role to play in the ecosystem. He cites several reasons, not least of all because as the asset management industry grows, especially beyond the mainstream and traditional asset classes and sectors, “they (the outsourced ManCos) will continue to grow,” he says, adding he also believes there are opportunities for a collaborative relationship between in-house ManCos like his (representing one asset manager), and the external ManCos, many of whom offer ancillary governance and regulatory services. “Luxembourg is really continuing to develop as a centre of ManCo excellence. Full stop.”

FBC’s Skills Audit Benchmarking for Luxembourg ManCos

This directors’ skills benchmarking is the first time an audit of this kind is being undertaken for the management companies (ManCos) of Luxembourg-domiciled investment managers. Conducted as part of Fund Boards Council’s (FBC’s) Board Advisory Services and specifically an offshoot of the work FBC does around Fund Board Effectiveness, the question of skills balance on ManCo boards is now more relevant than ever before, as noted in the report above.

For more details on being a ManCo participant in this inaugural benchmarking exercise, please get in touch at