In this third edition of the KPMG Large-Scale ManCo & AIFM Survey, we have placed a particular focus on the driving forces regarding the evolution of the operating model of Management Companies (ManCos) and Alternative Investment Fund Managers (AIFM). ManCos and AIFMs face a series of challenges to their operating model which are not only driven by the recent macroeconomic uncertainties but are also linked to the strategic repositioning of the Luxembourgish ManCo within the Group context as well as responding to the increasing depth of regulatory scrutiny.
Welcome to the KPMG Luxembourg Large-Scale ManCo & AIFM Survey 2023
Compared to the previous edition of our Large-Scale ManCo Survey, in this years’ edition we extended the reach of participants to not only cover the largest ManCos in Luxembourg, but also a selection of the largest pure-play Alternative Investment Fund Managers with the objective of identifying commonalities and differences in the strategy roadmap across the Asset Management landscape.
The results of the KPMG Large-Scale ManCo & AIFM Survey 2023 comprise operating model trends and key challenges for 30 ManCos and AIFMs that participated in our survey which, in aggregate, represent more than 60 percent of assets under management in Luxembourg.
We would like to thank the 30 ManCos and AIFMs who shared the features of their business models and their perspectives on the challenges and opportunities to come. Collecting and analyzing all this data helps us all understand what the key strategic priorities and market trends are, to be able to adapt and grow.
30 out of the largest ManCos in Luxembourg
22 Super ManCos and 8 AIFMs
Employing over 1700 FTEs
Over 4150 managed sub-funds
More than EUR 2400 bn of total AuM
Representing 60 % of the Luxembourg market
What are the drivers of ManCos’ & AIFMs’ operating model transformation?
When talking about value creation, product innovation is at the core of the ManCo’s strategy. We observe that the ManCo’s operating model transformation is in full force and, despite the macroeconomic uncertainties, ManCos continue to embrace the importance of lean processes and operations to preserve their competitive advantage.
Evolution of the Luxembourg ManCo towards an EMEA Product and Distirbution Hub
The expansion towards a Luxembourg ManCo Hub model is worth highlighting. A majority of ManCos & AIFMs are increasing their footprint vis-a-vis their Group towards an EMEA Product and Distribution Hub. This is particularly visible by a significant increase in the number branches as well as the resource count in the branches of Luxembourgish ManCos (21% increase in employees working in branches of Luxembourgish ManCos). Furthermore, we see an increasing trend for ManCos to offer ancillary services in addition to the hosting of funds, notably through acquiring a MiFID top-up license.
Product innovation and continued expansion of the AIF footprint
Three out of four ManCos participating in our survey stated that the observed ManCo operating model evolution is motivated by the strategic decision to expand the existing licenses and product offering, in particular expanding the alternative investment footprint. Notably, while asset under management of UCITS funds decreased 12% compared to last year among the survey participants, the asset under management of AIFs increased by 8%.
Complexity of ESG adaptation for the operating model
While ESG is considered a key regulatory focus area for the large majority of ManCos, we observe a high degree of dispersion in ESG operating models. We see a heterogenous landscape in terms of ESG framework maturity along the sample, where only 36% of ManCos consider their ESG control framework to be either mostly or fully mature.
Finding the right talent
Finding the right talent for key ManCo positions has been raised as a key challenge for 76% of ManCos participating in our survey. Further, more than 50% of survey participants highlighted concerns regarding the cost of doing business in Luxembourg, driven by the increasing costs of achieving compliance with regulatory requirements as well as increasing operating costs (resource costs, rents, etc.).
A message from our asset management consulting leader
ManCos & AIFMs have realized the need to continuously review and challenge their operating models to stay competitive and find the right balance between remaining regulatory compliant and operationally efficient.
In relation to the recent macroeconomic uncertainties, the quest for cost rationalization and optimization, as well as widening the product offering and target market, has crystallized as a key motivation for the operational model transformation in order to stay competitive.
In the results of this survey, we’ve outlined the key forces that are shaping the Luxembourgish asset management market.
Alan Picone, Asset Management Consulting Leader, KPMG Luxembourg
The ManCo operating model transformation is in full swing
Motivated by the aim of optimizing processes and scaling operations, we observe that the ManCo operating model transformation is widespread, despite the macroeconomic uncertainties.
According to the survey, 97% of ManCos & AIFMs seek to review their current operations, while 31% consider their operating model in full transformation and 66% see a need for an incremental evolution of the existing operations.
Next to increasing margin and cost pressure, we observe that product innovation is at the core of the operating model evolution.
How do they achieve that evolution?
Staff and governance
Via additional products, services & licenses
Strategic review of target operating model
Expansion towards a Luxembourg ManCo Hub Model
A majority of ManCos and AIFMs are increasing their footprint vis-a-vis their Group towards an EMEA Product and Distribution Hub. This is accompanied by an increasing adoption of branches (73% of participants have branches, located across 18 different countries and 1016 total FTEs in branches), the acquisition of additional licenses, as well as the appointment of executives with global roles located in Luxembourg. Consequently, ManCos are not only limited to the borders of Luxembourg but are increasingly moving towards a global footprint.
Towards a Luxembourg Hub Model
ManCos & AIFMs with MiFID top-up license
ManCos & AIFMs with branches
ManCos & AIFMs with at least one Conducting Officer with Global responsability
Flat FTEs in Lux offices, but accelerated growth of staff in branches
While 2021 was marked by an increase of +14% in FTEs (full-time employees) from 2020, in 2022 the evolution of the headcount of ManCos was largely flat. In total, over the last 12 months, we observe a 1% increase of staff employed by ManCos , which can be broken down into a 3% increase in FTE core substance functions, a 1% increase in FTE in support functions and 1% decrease in FTE in operations functions.
Conversely, business activity in the branches has increased significantly since last year. The number of FTEs located in branches of Luxembourg ManCos grew by more than 20% compared to previous years.
Evolution of ManCo FTEs
In Lux Office
+3%Core substance functions
Building safeguards towards increasing regulatory scrutiny
Due to the increasing CSSF regulatory scrutiny, ManCos & AIFMs recognized the need to monitor and mitigate their regulatory risk exposure by establishing a series of regulatory risk mitigation initiatives.
So, how are ManCos & AIFMs getting prepared? In our survey we noted that 96% of participants have a regulatory watch solution in place, 70% proactively meet with the regulator on a periodic basis and 41% have performed a regulatory health check and/or mock inspection over the past two years.
While only 25% of ManCos feel fully prepared for an upcoming regulatory on-site inspection, we observe that ManCos which performed a regulatory mock inspection in the past two years feel, on average, almost twice as prepared for an upcoming inspection than ManCos that did not perform a regulatory mock inspection recently.
How do ManCos get prepared?
of ManCos have in place a regulatory watch solution for their regulatory risk management.
of ManCos proactively meet with the regulator on a periodic basis to discuss new strategies, any changes in the operating model...
of ManCos have performed a regulatory health check and/or mock inspection in the past two years.
What is the impact of that preparation?
of ManCos that did not perform a mock inspection in the past two years, feel well perapred for a CSSF inspection.
of the ManCos that performed a ManCo health check in the past 2 years, feel well-prepared
Product innovation at the core of the ManCo value creation
76% of respondents stated that the observed ManCo operating model evolution is mainly motivated by the strategic decision to expand the existing licenses and product offering in order to respond to the pertinent margin fee pressure and to target new client segments.
More concretely, we noted that the strategic decision to expand the existing licenses and product offering materializes by:
- the increase in alternative licenses: we noted a 17% increase in the MiFID top up license acquisition, followed by an 11% increase in Private Equity licenses and a 6% increase in infrastructure licenses
- the interest in increasing the target market: 45% of participants were looking into the AIF offering to retail investors and 34% were looking into the marketing of the third party funds under the MiFID top-up.
Increase in licenses acquired, compared to the previous year
The “paradox” of the ESG revolution
While ESG is considered a key regulatory focus area for the large majority of ManCos & AIFMs, we observe a high degree of dispersion in ESG operating models. While ESG adoption increased compared to the previous year from 45% to 52% in AuM, we see a high degree of diversity among survey participants: some have barely any ESG funds while there are others with a systematic roll-out of an ESG objective for funds managed.
While ESG continues to be rapidly integrated in the fund's investment strategy, the majority of ManCos do not consider their framework to be overall mature: only 36% of ManCos & AIFMs consider their ESG control framework to be either mostly or fully mature.
What percentage of managed funds, in terms of AuM, have an ESG label?
ESG framework maturity according to our participants
Meet the team
Asset Management Consulting Leader
Partner, Head of Asset Management
Partner, Head of Alternative Investments
Insights on the AIF technology systems used by Asset Servicers across Administrative and Depositary functions.
Insights on the AIF technology systems used by Asset Servicers.