Raising cross-border capital in Europe without the back-office burden

Before a fund can be offered in a new market, it typically needs to be registered there, and even testing investor appetite comes with rules as some national regulators still diverge on how pre-marketing is applied in practice. Once the marketing of the fund begins, communications must satisfy both EU-level guidelines and local requirements, which can be quite onerous, particularly when the fund is marketed in many different markets.

As for the capital itself, it comes from two main directions: retail and institutional investors. 

When it comes to the first category, retail investors represent an important pool of capital that is only expected to grow in the coming years, especially in the context of the Savings and Investments Union. The reformed European Long-term Investment Fund regulation (ELTIF 2.0) is already leading to increased retail investment flows into private markets, while recent proposed pension-related regulatory reforms will likely encourage more citizens to invest through Pillar 2 (employer-sponsored) and Pillar 3 (private) pension plans in the coming years.

As for the institutional investors, banks typically require look-through data on fund holdings to calculate their capital requirements under the Capital Requirements Regulation (CRR). Without the data, they can face significantly heavier risk weights, which then requires them to set aside more reserves against the same fund holdings, impacting their ability to finance the real economy. As for insurance companies, they rely on fund data delivered in the Tripartite Template (TPT), the industry-standard format for the look-through information they need under the Solvency II Directive. Pension funds, for their part, need figures that fit their domestic tax treatment or their sustainability obligations. 

Add to that the geography dimension: Investors located in different countries are subject to different tax regimes and regulatory expectations, so a fund marketed in ten markets will have multiple investor profiles. The fundraising effort thus quickly becomes far more complicated than simply building trust and a good relationship with investors, and failing to abide by the parallel behind-the-scenes obligations could quickly derail even the best efforts made.

On top of investor-driven requirements, asset managers also have their own reporting obligations. Alternative Investment Fund Managers (AIFMs) and management companies (ManCos) must meet supervisory reporting requirements under numerous regulatory frameworks, each of which has its own data, deadlines and controls.

The reporting challenges end up piling on top of each other, as obligations draw on overlapping fund, portfolio and investor data, while following different methodologies, frequencies and formats. Without a coordinated approach, asset managers end up running separate processes for each report, reconciling the same data repeatedly and tracking regulatory changes market by market. 

The investment strategy – no matter how strong and appealing – can essentially become dead in the water without a strong distribution and fund services capability, and the ability to serve investors in a compliant and efficient manner becomes a competitive advantage in its own right.