UCITS Management Companies / SMICs

Author:Mr Andrew Bates
Profession:Dillon Eustace

Due to their legal nature, UCITS established as unit trusts or as CCFs require a Management Company in their structure (following implementation of UCITS IV, the Management Company is no longer required to be located in Ireland). This is because a unit trust is created by a Management Company and Trustee entering into a trust deed and, in the case of a CCF, it is constituted contractually by the Management Company unilaterally entering into a deed of constitution. UCITS established as investment companies have the option as to whether or not to appoint a management company. UCITS which do not appoint a management company are known as "self-managed investment companies" ("SMICs").

Up until the introduction of UCITS IV, the Management Company of a UCITS had to be located in the same jurisdiction as the UCITS itself. Since the introduction of UCITS IV, the Management Company of a UCITS may be located in a different EU member state to that of the UCITS.

Management Company

In the fund management industry, particularly when dealing with collective investment schemes, the terms "Management Company" and "Investment Manager" have different meanings, different functions and different passports. These distinctions can at times become blurred, but it is important to understand the difference as explained further below.

When we refer to a "Management Company" (the term "Management Company" and "Manager" are used interchangeably and refer to the same entity), we are referring to the entity which has the ultimate responsibility for the overall management of a collective investment scheme. This overall management function encompasses overall control of the collective investment scheme, including the discretionary investment management function, the fund administration function and the distribution function.

If a Management Company is used for a collective investment scheme, the contractual arrangements are structured so that the Management Company is mandated to carry out investment management, fund administration and distribution in respect of the Irish domiciled collective investment scheme but the reality, in most cases, has been that the Management Company delegates out fund administration to a regulated administrator, the distribution activity to a distributor in the jurisdiction where the UCITS is being distributed and the investment management function to an appropriately regulated Investment Manager which, if it is a European entity, would be authorised in its Home EU Member State under the Markets in Financial Instruments Directive ("MiFID").

Permitted Activities of UCITS Management Companies

A UCITS Management Company can be authorised for collective portfolio management and, but not or, for individual portfolio management. This means that a UCITS Management Company can act as Management Company to collective investment schemes and, if it wishes to expand its authorisation, it can also provide discretionary asset management services to other types of clients (i.e. clients which are not collective investment schemes) such as pension funds, corporates, insurance companies and retail investors.

See Appendix C for the full range of services and an explanation of the terms collective portfolio management and individual portfolio management as they apply to UCITS Management Companies.

Management Company Passport

The Management Company passport allows a UCITS Management Company to pursue in other EU Member States the activities for which it has been authorised in its home Member State, including the management of UCITS domiciled in other Member States. This can be achieved either (i) through the establishment of a branch or (ii) on a freedom of services basis.

The Management Company passport was first introduced under UCITS III and perfected under UCITS IV.

Establishment of Branch

A Management Company wishing to establish a branch in another EU Member State must notify its home regulator of its intention to do so. Such notification will be required to include:

the name of the other EU Member State in which it intends to operate; a programme of operations including a description of the activities envisaged and the organizational structure of the branch; a description of the risk management process put in place by the Management Company; and the address of the Management Company in its host Member State from which documents may be obtained and details of those responsible for the management of the branch. Freedom to Provide Services

A Management Company wishing to pursue activities in another EU Member State under the freedom to provide services must notify its home regulator and provide it with the following information:

the name of the other EU Member State in which it intends to operate; and a programme of operations including stating the activities and services it will undertake, including a description of the risk management process put in place by the management company...

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