This week’s announcement that financial services firm Link is in talks about selling its Authorised Corporate Director (ACD) business to Waystone Group, and is in ongoing confidential discussions with the Financial Conduct Authority (FCA), puts ACDs firmly back in the spotlight.
This latest news follows the FCA’s review of host ACD firms and the FCA report published in 2021.
An ACD, also known as Authorised Fund Manager (AFM), has ultimate responsibility for the proper running of a fund in the UK. Many asset managers and some wealth management firms have an in-house ACD company. Others use a host ACD: one who specialises in providing the service to a range of fund sponsors. Link is the largest, and its role as ACD for the collapsed Woodford Equity Income Fund has triggered the current situation.
But apart from Link, who are the other ACDs – and what distinguishes them from each other?
Currently there are just over a dozen host ACD firms, almost all of which support at least one well-known fund range. For example, Tutman has UBS; FundRock and Maitland, both now part of Apex Group, have Mattioli Woods and Brewin Dolphin respectively; Equity Trustees has River & Mercantile; Waystone (which recently acquired T Bailey) has Kleinwort Hambros; IFSL has the Marlborough funds and James Hambro; Evelyn has its own funds and Brooks Macdonald; Carne has Lombard Odier; and Valu-Trac has AJ Bell.
No two are the same. Some of the key areas of difference are explained below.
- Size and ownership: this is an important differentiator, both in terms of the funds on the firm’s books and the firm’s balance sheet. Some ACDs have a small UK balance sheet (regulatory minimum plus a buffer); certainly not large enough to cover the scale of fine or compensation to investors seen in the past or in consideration for Woodford. But the ACD may have a parent with a much larger balance sheet. If so, the focus turns to the parent’s commitment and appetite to support the ACD in a range of circumstances. The scale and nature of insurance arrangements also varies across firms. Ownership includes listed companies, private (family) owned firms and/or private equity-backed. It’s worth considering whether there could be impact on services from M&A activity. Where private equity is involved, what is the exit strategy and likely timing?
- Types of fund: ACDs also differ in the types of sponsors and funds they support. All are happy to have large Undertakings for Collective Investment in Transferable Securities (UCITS) or Non UCITS Retail Schemes (NURS) funds, with retail distribution and straightforward investment objectives. Some ACDs are happy to support more specialist funds for private investors / families, sponsored directly by the investor or by an investment manager firm, with limited distribution and more complex investment oversight requirements. ACDs may need unauthorised Alternative Investment Fund (AIF) permission for this, in addition to the more regular UK UCITS and authorised AIF permissions. Funds for charities require further specialist support.
- UK or global: some ACDs are part of an international group which provides equivalent services in multiple jurisdictions, increasing scale and potentially allowing some centralisation of operations. Each country has its own way of doing things however, meaning that synergies for international firms are not as extensive as could be expected. Other ACD firms focus on the UK only.
- Own funds: a host ACD, looking after other firms’ funds, may be part of a group which also has a fund manager, and look after these “in-house” funds as well. Examples of this are IFSL which is part of the Marlborough Group and Evelyn Fund Services which, as its name suggests, is owned by Evelyn Partners. Having own funds as well can be viewed as a sign of stability and extra incentive to do the job well. It can also raise concerns about potential for unequal priorities in times of stress, though this is countered by effective conflict of interest policies.
- Range of services: is it better to be an ACD who provides a full suite of services, including transfer agency and fund administration, or to provide ACD service only? There are convincing arguments for both. An ACD-only provider such as Tutman, Carne or Equity Trustees can expound the benefits of independence and choice of best-in-class providers for other services, even better if backed by established links and working practices with well respected names. A full service ACD such as Maitland, Yealand or IFSL can major on efficiency, direct control and quick response times from having everything under one roof. Some firms also offer both approaches.
- Cost: the efficiency point above leads to a final key area of differentiation: pricing. Can those efficiency benefits be passed on in the form of a compelling rate card? There are different rate card structures in the market and the approach to minimum fees for smaller funds varies too. There is no simple answer: it depends on the details of the funds in question and the usual myriad of commercial considerations. And a final point to note here is that ACD fees typically represent a small part of a fund’s ongoing charges, especially in relation to the investment management fee.
Our award-winning team offers specialist advice to asset and wealth management firms. If you sponsor a fund and would like to know more about options for ACD provision, please contact us.
