The results are in for the first edition of the KPMG Luxembourg third-party management company survey. This survey is unique, as it only focuses on companies that relate to the management of funds where the sponsor does not belong to the same group as the management company.
The last few years have been an exciting time for third-party management companies. The market has developed strongly and been recently subject to dynamic movements (e.g. mergers and acquisitions).
In this survey, we try to demystify what a third-party management company is. We take a closer look at how Luxembourg third-party ManCos are eager to develop their range of capabilities even further and are massively composed by players combining several different strategies.
Go Deeper: Contact us to get more survey insights.
participants to the 2022 KPMG 3rd Party ManCo Survey
AIFs managed by respondents
UCITS managed by respondents
bn of AuM (funds) represented in this survey
FTEs employed by the ManCos and AIFMs
We would like to thank the 17 third-party ManCos that shared the features of their business models, as well as their key strategic priorities.
The results of this survey provide a fair representation of the third-party management company market.
Business models continue their path towards alternatives
The third-party management company consists of many players who combine different strategies: 47% of third-party ManCos are managing 7 or more different investment strategies at the same time. Historically, these ManCos are oriented toward private equity (94%), private debt (88%) and real estate (82%).
In comparison: only 45% of internal ManCos manage private equity strategies and 55% for real estate strategies. If you’re interested to learn more about Internal ManCos, read our Large-Scale ManCo Survey.
One finding of our survey is that third-party ManCos are eager to develop their range of capabilities even further: 47% of participants are looking (or are in the process) of acquiring an additional CSSF license in the short term. The most requested licenses can be broken down as follows: 31% of license requests are for the Infrastructure license, 23% accounts for the Virtual Assets license, and 15% for the private debt license.
These are the various licenses that respondents have purchased:
*18% of participants intend (or have started) to acquire the virtual asset license in the short midterms.
A volatile market full of opportunities - and challenges
29% of participants believe that the Luxembourg market will consist of only a few established players in 3-5 years, reflecting the emerging consolidation of the management company market. In addition, third-party ManCos are facing issues to staff their teams, especially in internal control functions. This dimension also needs to be put into perspective: The average team size of a risk management / compliance function has increased by 19% in 2021.There has been a migration of talent from third-party ManCos to internal ManCos.
While trying to be competitive with their peers, third-party management companies are suffering from a lot of pressure from ManCo fees: new regulatory requirements (e.g. AML, ESG, etc.), new expertise that needs to be developed, more full time positions, the recent decline in AuM base etc. As a result, third-party management companies are also looking for “digitalization” solutions to help them streamline their operations. 38% of survey participants sell technology services to their clients.
We asked our participants to define the top 3 of opportunities or their ManCo. Here are the results:
What are the main opportunities for 3rd party ManCos?
How do third-party ManCos reflect the complexity of their business model into their operating model?
Compared to internal ManCos, third-party ManCos generally kept the functions internally, using outsourcing arrangements rather than pure delegation. However, internal control functions are almost always (82%) kept entirely internalized (e.g. without outsourcing).
60% and 65% of the portfolio management and valuation functions were held internally, respectively, via internal committees leveraging on external experts. This outsourcing model requires oversight of a significant number of delegates: a third-party ManCo oversees nearly 90 different delegates (median). The allocation of these providers is shown below:
Illustration of the median delegates' eco-system
Median of KPMG participants
When it comes to the internal organization, nearly ¾ of participants have implemented a centralized oversight team in charge of the core delegates supervision.
ManCo's Delegates Eco-system
Regular reception of KPIs
Systematic signature of Service Level agreement
Want to know more?
Are you interested in knowing more? The above information is only a sneak peek of the KPMG third-party ManCo Survey 2022 results. KPMG has also collected insightful trends on:
- The implementation of technology solutions to serve clients
- The integration of Sustainability components into their business model
- The CSSF inspection activities and commonly scrutinized areas
- The construction of the service offering including revenue generation insights.
Do not hesitate to contact us if you would like access to more detailed no-name information about the industry and your peers.
Would you like to participate in our next survey and know how you compare to the other participants?
Asset Management Consulting Leader
KPMG in Luxembourg
Partner, Head of Asset Management
KPMG in Luxembourg
Partner, Head of Alternative Investments
KPMG in Luxembourg