Asset Managers Establishing Funds on Third-party Platforms

Our Investment Funds team considers the main legal and commercial issues which asset managers are focused on when negotiating with third-party fund platform providers in Ireland. Given the growth in the use of third-party platforms in Ireland, this analysis offers essential insights for asset managers looking to onboard on to existing provider platforms.

Recently, there has been significant growth in the use of third-party, or ‘white label’, platform providers in Ireland. A third-party platform provides an efficient route for asset managers looking to ‘plug and play’ using an existing Irish fund umbrella to gain access to the wider European market. The relevant sub-fund sits alongside other sub-funds on the platform all of which benefit from segregated liability under Irish law. Adopting this approach means an asset manager sacrifices some control over the selection of umbrella-level service providers and representation at board level. However, a platform may be particularly suitable for asset managers familiar with an outsourcing model and not planning to launch multiple sub-funds in the near future.

Alongside traditional mutual funds, several service providers also now offer ETF specific platforms which benefit from existing capital market structures.

We outline typical issues asset managers and platform providers are likely to encounter as part of an onboarding process.

Fund flows

Where a platform provider will be assisting with product distribution alongside the asset manager’s marketing team, the onboarding agreement should clearly outline the criteria for determining the responsible party for the relevant fund flows. For an existing fund which is being relaunched or rebranded, the current assets under management would typically be subject to a separate fee arrangement. The relevant agreements should also clearly outline the position for fees where the relationship between the asset manager and the platform provider is terminated including any severance or trail fees.

Asset manager indemnity

As a delegate of the management company, the level of indemnity given to the asset manager will be a particular point of focus. Asset managers should consider any quantitative caps or other carve outs included in the indemnity provisions.

Off-platform movement

Asset managers may wish to negotiate terms to allow for the fund to be transitioned to another platform or a proprietary umbrella in the future depending on the performance of the product.

Termination

Asset managers should consider the provisions and timing related to ‘no-fault’ terminations of the relationship with the platform provider. Asset managers may also wish to include a disclosure in the relevant legal documents providing for a fund to be renamed, if required, following a termination.

Existing platform funds

As noted above, under Irish law, sub-funds in an umbrella fund structure benefit from segregated liability. However, as part of their broader due diligence, asset managers may wish to consider the existing strategies available under the relevant umbrella.

Non-compete provisions

Asset managers and platform providers should also consider the suitability of non-compete provisions which will apply during or after the termination of the relationship. This may be particularly pertinent if existing funds in an umbrella have a similar strategy.

Passporting and distribution

Asset managers will want to consider where the proposed fund will be marketed and what, if any, assistance can be provided by the distribution function in the platform provider. In particular, given the importance of the Swiss market, the availability of bespoke distribution capabilities to access capital in that market may be important.

Capital markets (ETFs)

Regarding ETFs specifically, asset managers should confirm what capital markets arrangements are in place on the existing platform including the availability of a sufficient level of service from established authorised participants and market makers.

Comment

Third party fund platforms offer an excellent path for asset managers seeking to access the European market through an Irish domestic fund within an existing legal framework. As a regular advisor to asset managers stepping on to third party platforms, our Investment Funds team is ideally positioned to advise on the above points and any other considerations arising from the specific relationship.

For more information and expert advice, contact a member of our Investment Funds team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.