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This is part 2 of a two-part series on launching a UCITS fund. If you’re still figuring out how to structure your fund, start with part 1.
This guide will help asset managers understand the operational steps of a launch so they can bring their latest products and solutions to investors. It focuses on the final stretch of the process: appointing service providers, choosing a depositary, and going to market.
Issuers that have decided to take a UCITS fund to market and have done the groundwork (determining their domicile, fund structure, and management company) are ready to take the final steps in making their fund available to investors. They’ve set up a unit trust, SICAV, ICAV, or Irish collective asset-management vehicles and now they need to go to market.
This is the culmination of all the hard work that has gone into a new product. Even if every prior step has been deeply considered and well-executed, these final steps are crucial and require asset managers to make smart decisions. These steps include:
We’ll explore each of these steps in detail, and address the key consideration that need to be made to best execute each step. We’ll also examine how to vet providers and what to be on the lookout for.
You might like: Why Ireland is a popular UCITS domicile
A management company (often abbreviated to “ManCo”) is a highly regulated firm that stewards an investment fund. Its duties include governance, compliance, risk management, and services oversight. ManCos will handle fund accounting and prioritize the protection of investor interests.
When launching a UCITS ETF, asset managers need an EU-regulated ManCo to ensure compliance and to distribute the fund across EU member states using the passporting system.
An effective ManCo handles many aspects of distribution so that asset managers can remain focused on investment strategy. Even firms that deploy a third-party ManCo do not surrender control. The issuer delegates key functions to the ManCo while driving fund identity, strategy, and key relationships. The ManCo, meanwhile, will be overseeing administrative tasks, ensuring the fund is in compliance, and managing the bureaucratic logistics of passporting of the fund. ManCo’s will track liquidity risks and a good ManCo will be a partner in the truest sense of the word, but the issuer will always be driving the strategy and making decisions about the direction of the fund.
Once you have a ManCo in place, you will still need to appoint the following:
The right service providers will keep your fund compliant, efficiently execute the administrative necessities that come with every fund, and act as true partners. An ineffective service provider could make mistakes, slow down tasks, overcharge, or even create unnecessary risk through mismanagement.
To ensure you have the right service providers, be sure to vet track records and take the time to review all of your options rather than just settling on the first ManCo you find. If your fund is more intricate or esoteric, make sure that the ManCo you are courting has the relevant knowledge and experience to be successful. For example, if you are creating a fixed income fund, a ManCo that has more experience with bonds will be a better choice than one that usually focuses on equity funds.
You will also want to look at the track record of a ManCo. If they have had compliance issues in the past, that’s a red flag. Do they have a cybersecurity framework in place? How operationally stable are they? Remember to check:
If there is a clear task delegation structure in place and the ManCo is reliably providing accurate daily pricing and valuation, that’s a good sign.
Every fund needs a depositary to handle the safekeeping of all assets and official documentation. Depositaries are independent from the fund and the ManCo and are essential for regulatory oversight, cash monitoring, and protecting the assets of a UCITS client.
A depositary will also manage key actions that are part of fund governance. These include voting and dividend distribution. Their primary function is to protect investor interest and assume liability should anything happen to the assets. This also somewhat protects asset managers. Because depositaries are independent and ensure strict regulatory compliance, this reduces operational risk for asset managers.
For asset managers, a depositary is usually a bank, though it can also be another type of regulated institution. For example, a nation’s state department might act as a depositary for an international treaty.
All investments are exercises in administration. A well-chosen fund administrator will ensure that net asset value (NAV) calculations are accurate and that fund accounting is as precise as possible. They will handle daily operations and are a big part of keeping a fund compliant through proper reporting and administration.
As issuers look to get their products in front of institutional investors and retail investors, a fund administrator will be critical for making the machinery of the fund function as intended. A good fund administrator is almost invisible. A mediocre fund administrator will be error-prone and could increase risk. For example, the accurate calculation of daily NAV will go unnoticed. An inaccurate daily NAV calculation could create issues, even resulting in investors being recompensated and reputational damage to the fund.
The UCITS directive allows for incredible flexibility through its passporting system while also focusing on investor protection. UCITS regulations naturally require a sharp, organized legal advisor and auditor.
Here’s what to pay attention to when selecting each one.
A UCITS fund legal advisor will act as the liaison between the asset manager and the regulatory body. If your fund is domiciled in Ireland, for example, the legal advisor will handle all communication with the Central Bank of Ireland.
The legal advisor will also draft the fund prospectus as well as the key investor information document (KIID.) They will also negotiate service agreements with your ManCo and set up the framework for UCITS passporting.
Auditors act as external eyes that ensure your fund maintains compliance. They review tax disclosures, financial statements, and the NAV calculation process. If they see anything amiss or inaccurate, they can flag it before a regulatory entity does, keeping the fund safe and within the bounds of UCITS regulations.
Before fund directors can officially take a role, they must be pre-approved by the Central Bank of Ireland’s fitness and probity regime. Directors can then appoint fund managers, but the Central Bank of Ireland will be the governing entity that handles final authorisation and clears all necessary fund documentation. After a fund is launched, the Central Bank of Ireland continues to supervise and assure compliance with all regulations and protocols.
Launch is the payoff of a fund’s journey from an idea into a fully realized product that investors can put money into. After spending time and resources getting to the final leg, the last thing an asset manager wants is for issues to arise during the launch of their UCITS fund.
Here are the critical steps to follow when preparing to launch.
Make sure the fund has determined its share classes and proper operational structure. A fund can offer distribution share classes, which regularly pay out dividends to investors or accumulating share classes, which automatically reinvest any dividends or income back into the fund in order to build share value.
On the structure side, an umbrella fund can host several sub-funds under a main entity. A multiple class fund can use different share classes in a single fund. A fund of funds can help spread risk, while master-feeder funds can allow for lower barriers to entry for small or individual investors. Whatever share class you choose, make sure it serves your product goals.
For more information, read How to structure a UCITS fund: legal and regulatory foundations
As asset managers prepare to launch their new product, they must make sure they have a NAV calculation and pricing plan in place.
Your fund administrator will handle the calculation of net asset value to determine pricing. They will also provide guidance and expertise on whatever share class you choose. If your fund is a sub-fund of an umbrella fund, for example, they will ensure that the proper administrative processes are executed.
Distribution agreements cover what territory a fund will passport through, provide clarity on fee structures, and also ensure authorized participants, market makers, and asset managers are all on the same page. A clearly put together distribution agreement prevents funds from accidentally making cross-border violations and help ensure liquidity.
A successful distribution agreement threads the needle between making the fund widely available and making compliance as clear and easy as possible. Fund managers should ensure that the distribution fees are reasonable and, most importantly, that the terms are very clear and cover a broad range of circumstances. It is also worth ensuring the distributor has no capacity constraints. It is also advantageous to set up payment timing to align with the fund’s NAV calculation.
A fund’s legal advisor, in conjunction with its ManCo, will handle the negotiation of distribution agreements. UCITS ETFs sell on both the primary and secondary markets, meaning that negotiating proper distribution agreements with authorized participants and market makers is critical to the successful distribution of a product.
The UCITS directive comes with a lot of specific requirements and can feel challenging to navigate. But it is far easier to go through one process than several.
The UCITS passport makes it easy to distribute a product in new markets and opens up a wide range of potential investors. A fund’s home regulator can easily share a notification package with a target country’s regulator, bypassing several onerous bureaucratic hurdles. The broader distribution possibilities and wider pool of potential investors means a less daunting journey toward milestone assets under management (AUM) goals.
Learn more about passporting in part one.
Launching a UCITS fund, or any fund, is not an easy task. Asset managers will face a host of challenges. Here are the most common, with tips for making each task more manageable.
The most common challenge a budding fund will face, arguably nearly universal, is a timeline delay. Any number of issues can arise. The central bank of the fund’s domicile may have unexpected notes that need to be addressed. ManCo and legal advisor’s putting the final touches on an agreement with, say, an important authorized participant might end up having to amend the agreement several times. It is hard to entirely avoid a timeline delay, but they can be mitigated through selecting a competent administrative team.
Any administrative task comes with a time cost. One common delay for a fund launch is poor coordination with a service provider. Even a skilled ManCo needs clarity to be efficient. Asset managers should strive to coordinate with their service providers as clearly and efficiently as possible.
There is a saying that all services can be good, fast, or cheap – but they can not be all three. When it comes to launching a fund, good and fast are nearly always a priority, which means costs are often in danger of spiraling. Asset managers looking to make a leap into the European market may not have a full understanding of the costs required to stand up a UCITS fund. Having an index partner like VettaFi that is familiar with the EMEA market can help smooth over potential cost obstacles.
Launching a UCITS fund requires granular, time-sensitive reporting and operational expertise. If a deadline or a reporting requirement is missed, that can cost time and money. A good partner who is familiar with the process can be essential for reducing and mitigating operational challenges.
One of the main challenges for asset managers looking to launch a UCITS ETF is that the European market is highly fragmented. Though the UCITS provides the passporting ability, it can be a daunting task to navigate several different currencies and languages. Additionally, many U.S. asset managers will attempt to run a UCITS ETF like it is a domestic mutual fund, and that will create challenges.
Europe represents an incredible opportunity for asset managers, but standing up a UCITS ETF that breaks through comes with plenty of
challenges. Having an index partner that understands the terrain can give issuers an edge over the competition. Learn how VettaFi can help you bring your product idea to EMEA.
There are six steps involved in launching a UCITS fund:
The UCITS directive allows for a UCITS fund that is established and domiciled in one European Union or EU-affiliated country to be traded in another. UCITS regulations offer rules for depositary oversight and protect investors.
The main service providers an issuer needs to launch a UCITS fund are a management company (ManCo), depositary, fund administrator, legal advisor, and external auditor.
Once all service providers have been appointed, it typically takes anywhere from three to six months to launch, depending on a host of factors. Some central banks, such as the Central Bank of Ireland, are known for speedy review processes of prospectuses and KIIDs.
Other domiciles may take longer. Issuers will have to draft documents, go through regulatory filing, address notes, and secure a final sign-off. An issuer domiciling a product in Ireland who is partnering with an index provider who understand the EMEA region will get their product launched faster than an issuer who domiciles elsewhere and who doesn’t have a partner who understands the region.
The Central Bank of Ireland (CBI) reviews documents such as fund prospectus and KIID, offering notes to legal and compliance teams. When these notes are addressed, the CBI approves of the fund, allowing it to launch. The speed and efficiency of the CBI compared to other central banks is one of the main reasons Ireland is the most popular domicile for UCITS ETFs.
The UCITS passport allows issuers to distribute their fund in any European Union or EU-affiliated nation if the fund has gained regulatory approval in one domicile.
The cost to appoint UCITS service providers will depend greatly on the complexity of the fund and competitiveness of the operational ecosystem.
Generally speaking, there will be some one-off set-up fees (such as legal counsel for setting up the fund structure and ManCo onboarding fees.) These fees are entirely dependent on fund structure and complexity. One off could very well be in the range of €75,000 and €150,000. There are also ongoing operational costs to consider. It would not be unreasonable to anticipate a UCITS fund might have operational expenses between €150,000 and €250,000 a year, though they can certainly go outside of those general bounds.
Asset managers outside of EMEA who are looking to expand their reach will find a host of advantages in setting up a UCITS fund. Choosing the right service providers is critical, and working with an index partner that knows the terrain can be a huge advantage.
Aside from building the right investable universe for your product, a partner like VettaFi can connect you to the right service providers and ensure a smooth launch.
This is part 2 of a two-part series on launching a UCITS fund. If you’re still figuring out how to structure your fund, start with part 1.
This guide will help asset managers understand the operational steps of a launch so they can bring their latest products and solutions to investors. It focuses on the final stretch of the process: appointing service providers, choosing a depositary, and going to market.
Issuers that have decided to take a UCITS fund to market and have done the groundwork (determining their domicile, fund structure, and management company) are ready to take the final steps in making their fund available to investors. They’ve set up a unit trust, SICAV, ICAV, or Irish collective asset-management vehicles and now they need to go to market.
This is the culmination of all the hard work that has gone into a new product. Even if every prior step has been deeply considered and well-executed, these final steps are crucial and require asset managers to make smart decisions. These steps include:
We’ll explore each of these steps in detail, and address the key consideration that need to be made to best execute each step. We’ll also examine how to vet providers and what to be on the lookout for.
You might like: Why Ireland is a popular UCITS domicile
A management company (often abbreviated to “ManCo”) is a highly regulated firm that stewards an investment fund. Its duties include governance, compliance, risk management, and services oversight. ManCos will handle fund accounting and prioritize the protection of investor interests.
When launching a UCITS ETF, asset managers need an EU-regulated ManCo to ensure compliance and to distribute the fund across EU member states using the passporting system.
An effective ManCo handles many aspects of distribution so that asset managers can remain focused on investment strategy. Even firms that deploy a third-party ManCo do not surrender control. The issuer delegates key functions to the ManCo while driving fund identity, strategy, and key relationships. The ManCo, meanwhile, will be overseeing administrative tasks, ensuring the fund is in compliance, and managing the bureaucratic logistics of passporting of the fund. ManCo’s will track liquidity risks and a good ManCo will be a partner in the truest sense of the word, but the issuer will always be driving the strategy and making decisions about the direction of the fund.
Once you have a ManCo in place, you will still need to appoint the following:
The right service providers will keep your fund compliant, efficiently execute the administrative necessities that come with every fund, and act as true partners. An ineffective service provider could make mistakes, slow down tasks, overcharge, or even create unnecessary risk through mismanagement.
To ensure you have the right service providers, be sure to vet track records and take the time to review all of your options rather than just settling on the first ManCo you find. If your fund is more intricate or esoteric, make sure that the ManCo you are courting has the relevant knowledge and experience to be successful. For example, if you are creating a fixed income fund, a ManCo that has more experience with bonds will be a better choice than one that usually focuses on equity funds.
You will also want to look at the track record of a ManCo. If they have had compliance issues in the past, that’s a red flag. Do they have a cybersecurity framework in place? How operationally stable are they? Remember to check:
If there is a clear task delegation structure in place and the ManCo is reliably providing accurate daily pricing and valuation, that’s a good sign.
Every fund needs a depositary to handle the safekeeping of all assets and official documentation. Depositaries are independent from the fund and the ManCo and are essential for regulatory oversight, cash monitoring, and protecting the assets of a UCITS client.
A depositary will also manage key actions that are part of fund governance. These include voting and dividend distribution. Their primary function is to protect investor interest and assume liability should anything happen to the assets. This also somewhat protects asset managers. Because depositaries are independent and ensure strict regulatory compliance, this reduces operational risk for asset managers.
For asset managers, a depositary is usually a bank, though it can also be another type of regulated institution. For example, a nation’s state department might act as a depositary for an international treaty.
All investments are exercises in administration. A well-chosen fund administrator will ensure that net asset value (NAV) calculations are accurate and that fund accounting is as precise as possible. They will handle daily operations and are a big part of keeping a fund compliant through proper reporting and administration.
As issuers look to get their products in front of institutional investors and retail investors, a fund administrator will be critical for making the machinery of the fund function as intended. A good fund administrator is almost invisible. A mediocre fund administrator will be error-prone and could increase risk. For example, the accurate calculation of daily NAV will go unnoticed. An inaccurate daily NAV calculation could create issues, even resulting in investors being recompensated and reputational damage to the fund.
The UCITS directive allows for incredible flexibility through its passporting system while also focusing on investor protection. UCITS regulations naturally require a sharp, organized legal advisor and auditor.
Here’s what to pay attention to when selecting each one.
A UCITS fund legal advisor will act as the liaison between the asset manager and the regulatory body. If your fund is domiciled in Ireland, for example, the legal advisor will handle all communication with the Central Bank of Ireland.
The legal advisor will also draft the fund prospectus as well as the key investor information document (KIID.) They will also negotiate service agreements with your ManCo and set up the framework for UCITS passporting.
Auditors act as external eyes that ensure your fund maintains compliance. They review tax disclosures, financial statements, and the NAV calculation process. If they see anything amiss or inaccurate, they can flag it before a regulatory entity does, keeping the fund safe and within the bounds of UCITS regulations.
Before fund directors can officially take a role, they must be pre-approved by the Central Bank of Ireland’s fitness and probity regime. Directors can then appoint fund managers, but the Central Bank of Ireland will be the governing entity that handles final authorisation and clears all necessary fund documentation. After a fund is launched, the Central Bank of Ireland continues to supervise and assure compliance with all regulations and protocols.
Launch is the payoff of a fund’s journey from an idea into a fully realized product that investors can put money into. After spending time and resources getting to the final leg, the last thing an asset manager wants is for issues to arise during the launch of their UCITS fund.
Here are the critical steps to follow when preparing to launch.
Make sure the fund has determined its share classes and proper operational structure. A fund can offer distribution share classes, which regularly pay out dividends to investors or accumulating share classes, which automatically reinvest any dividends or income back into the fund in order to build share value.
On the structure side, an umbrella fund can host several sub-funds under a main entity. A multiple class fund can use different share classes in a single fund. A fund of funds can help spread risk, while master-feeder funds can allow for lower barriers to entry for small or individual investors. Whatever share class you choose, make sure it serves your product goals.
For more information, read How to structure a UCITS fund: legal and regulatory foundations
As asset managers prepare to launch their new product, they must make sure they have a NAV calculation and pricing plan in place.
Your fund administrator will handle the calculation of net asset value to determine pricing. They will also provide guidance and expertise on whatever share class you choose. If your fund is a sub-fund of an umbrella fund, for example, they will ensure that the proper administrative processes are executed.
Distribution agreements cover what territory a fund will passport through, provide clarity on fee structures, and also ensure authorized participants, market makers, and asset managers are all on the same page. A clearly put together distribution agreement prevents funds from accidentally making cross-border violations and help ensure liquidity.
A successful distribution agreement threads the needle between making the fund widely available and making compliance as clear and easy as possible. Fund managers should ensure that the distribution fees are reasonable and, most importantly, that the terms are very clear and cover a broad range of circumstances. It is also worth ensuring the distributor has no capacity constraints. It is also advantageous to set up payment timing to align with the fund’s NAV calculation.
A fund’s legal advisor, in conjunction with its ManCo, will handle the negotiation of distribution agreements. UCITS ETFs sell on both the primary and secondary markets, meaning that negotiating proper distribution agreements with authorized participants and market makers is critical to the successful distribution of a product.
The UCITS directive comes with a lot of specific requirements and can feel challenging to navigate. But it is far easier to go through one process than several.
The UCITS passport makes it easy to distribute a product in new markets and opens up a wide range of potential investors. A fund’s home regulator can easily share a notification package with a target country’s regulator, bypassing several onerous bureaucratic hurdles. The broader distribution possibilities and wider pool of potential investors means a less daunting journey toward milestone assets under management (AUM) goals.
Learn more about passporting in part one.
Launching a UCITS fund, or any fund, is not an easy task. Asset managers will face a host of challenges. Here are the most common, with tips for making each task more manageable.
The most common challenge a budding fund will face, arguably nearly universal, is a timeline delay. Any number of issues can arise. The central bank of the fund’s domicile may have unexpected notes that need to be addressed. ManCo and legal advisor’s putting the final touches on an agreement with, say, an important authorized participant might end up having to amend the agreement several times. It is hard to entirely avoid a timeline delay, but they can be mitigated through selecting a competent administrative team.
Any administrative task comes with a time cost. One common delay for a fund launch is poor coordination with a service provider. Even a skilled ManCo needs clarity to be efficient. Asset managers should strive to coordinate with their service providers as clearly and efficiently as possible.
There is a saying that all services can be good, fast, or cheap – but they can not be all three. When it comes to launching a fund, good and fast are nearly always a priority, which means costs are often in danger of spiraling. Asset managers looking to make a leap into the European market may not have a full understanding of the costs required to stand up a UCITS fund. Having an index partner like VettaFi that is familiar with the EMEA market can help smooth over potential cost obstacles.
Launching a UCITS fund requires granular, time-sensitive reporting and operational expertise. If a deadline or a reporting requirement is missed, that can cost time and money. A good partner who is familiar with the process can be essential for reducing and mitigating operational challenges.
One of the main challenges for asset managers looking to launch a UCITS ETF is that the European market is highly fragmented. Though the UCITS provides the passporting ability, it can be a daunting task to navigate several different currencies and languages. Additionally, many U.S. asset managers will attempt to run a UCITS ETF like it is a domestic mutual fund, and that will create challenges.
Europe represents an incredible opportunity for asset managers, but standing up a UCITS ETF that breaks through comes with plenty of
challenges. Having an index partner that understands the terrain can give issuers an edge over the competition. Learn how VettaFi can help you bring your product idea to EMEA.
There are six steps involved in launching a UCITS fund:
The UCITS directive allows for a UCITS fund that is established and domiciled in one European Union or EU-affiliated country to be traded in another. UCITS regulations offer rules for depositary oversight and protect investors.
The main service providers an issuer needs to launch a UCITS fund are a management company (ManCo), depositary, fund administrator, legal advisor, and external auditor.
Once all service providers have been appointed, it typically takes anywhere from three to six months to launch, depending on a host of factors. Some central banks, such as the Central Bank of Ireland, are known for speedy review processes of prospectuses and KIIDs.
Other domiciles may take longer. Issuers will have to draft documents, go through regulatory filing, address notes, and secure a final sign-off. An issuer domiciling a product in Ireland who is partnering with an index provider who understand the EMEA region will get their product launched faster than an issuer who domiciles elsewhere and who doesn’t have a partner who understands the region.
The Central Bank of Ireland (CBI) reviews documents such as fund prospectus and KIID, offering notes to legal and compliance teams. When these notes are addressed, the CBI approves of the fund, allowing it to launch. The speed and efficiency of the CBI compared to other central banks is one of the main reasons Ireland is the most popular domicile for UCITS ETFs.
The UCITS passport allows issuers to distribute their fund in any European Union or EU-affiliated nation if the fund has gained regulatory approval in one domicile.
The cost to appoint UCITS service providers will depend greatly on the complexity of the fund and competitiveness of the operational ecosystem.
Generally speaking, there will be some one-off set-up fees (such as legal counsel for setting up the fund structure and ManCo onboarding fees.) These fees are entirely dependent on fund structure and complexity. One off could very well be in the range of €75,000 and €150,000. There are also ongoing operational costs to consider. It would not be unreasonable to anticipate a UCITS fund might have operational expenses between €150,000 and €250,000 a year, though they can certainly go outside of those general bounds.
Asset managers outside of EMEA who are looking to expand their reach will find a host of advantages in setting up a UCITS fund. Choosing the right service providers is critical, and working with an index partner that knows the terrain can be a huge advantage.
Aside from building the right investable universe for your product, a partner like VettaFi can connect you to the right service providers and ensure a smooth launch.
