19 December 2018
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Cost efficiency, speed to market, and the ability to handle an ever increasing compliance burden are reasons why so-called fund hotels are increasingly being used by managers, especially when bringing new funds to market, according to a forum hosted by the Swedish Investment Fund Association.
Such 'hotels' have long existed in countries such as Luxembourg and Ireland, and as of a couple of years ago also in Sweden.
Thomas Nilsson, chief executive at FCG Fonder, outlined how fund hotels set up a new fund and can take over existing funds. He noted that they can be seen as an answer to the increasing burden of regulation that face fund companies, and where an increasing number of smaller players find that related administration takes an increasing amount of time away from what is actually their core competence.
Fredrik Nordström, chief executive of the Investment Fund Association, moderated the subsequent discussion, which included Magtnus Lekander, board member at East Capital, Erik Lindholm, deputy director at the Swedish Financial Supervisory Authority (Finansinspektionen) and Johan Hedelin, director of the Advocacy Department of the Swedish Competition Authority (Konkurrensverket).
Lekander, representing the sell side, said fund hotels are a good way to rapidly get business going, but that for most fund managers will be seen as a temporary step on the path to growth.
Lindholm noted that the phrase 'fund hotel' is not listed in the vocabulary of the Supervisory Authority, but is a way to visualise on behalf of the customer what is on offer. From a regulatory perspective, fund hotels are just like any other fund company. And they all have an absolute responsibility for the business conducted, he noted.
Hedelin, said that not least compliance costs have increased significantly in recent years, and that in the new world with continously increasing requirements from authorities, fund hotels are an important factor in terms of industry innovation.
In terms of that increased regulatory burden and how it affects competition in the fund industry, Hedelin stressed that there must be a common set of EU rules that is proportionate so that smaller players can survive. Nilsson agreed and pointed out that it is important for Sweden's Ministry of Finance to think through implementation of EU law in Sweden.
The panel seemed to be in agreement that implementation of regulations can skew competition in favour of larger players. They also mentioned that to strengthen competition in the Swedish market, it would be beneficial to consider legislation that could introduce a fund structure similar to the Sicav structure in Luxembourg - something that was touched on in a previous government initiated inquiry into levels of competition in the Swedish fund market (https://www.regeringen.se/rattsliga-dokument/statens-offentliga-utredningar/2016/06/sou-201645/ )
