Nordic countries have built idiosyncratic fund industries initially for their own domestic needs. This contrasts sharply with the approach of Luxembourg and Ireland, which used the harmonised regulatory frameworks governing UCITS funds and later AIFs to create cross-border business and distribute products throughout the EU and beyond.

It is important to understand the history of markets like Denmark and Sweden and what has driven domestic asset management growth. As always, context is key ; the role of the fund within the fabric of each nation’s financial services sector.

Nordic fund models

The roots of the earliest Swedish fund providers lay in the banks and their distribution networks. More often than not, the parent bank handled fund administration, trading, sales and other functions. Effectively outsourcing servicing to their tied distributor enabled asset managers to focus on their primary function: boosting the value of investments for their customers. And so a market evolved in which each of these distributor-managers built its own asset administration  system, risk and reporting processes.

Not every domestic manager grew directly out of a bank ; others had their genesis in the family office sector, where the focus was on reporting, with little need for distribution capability for firms serving a captive market. Logically, each model entails a very different approach to outsourcing and whom firms partner with.

As the industry continues to evolve, established distinctions are breaking down. Managers have been obliged to adapt to suddenly-imposed new regulations, reporting, tax changes, rules liquidity and more recently to remote technology and secure systems. If that was not enough, the Covid-19 pandemic has shone a brighter spotlight on costs and resources and own administration capabilities.

How Luxembourg is different

With a domestic market for investment funds far smaller than those of Sweden or Denmark, Luxembourg has capitalised on the legislation creating a single EU market over the past three decades to become a European fund services powerhouse.

To position itself as a hub for the growing cross-border market, it had to industrialise the operational value chain, creating a comprehensive ecosystem encompassing distinct services including, fund accounting, transfer agency, management company services, risk management, KYC and anti-money laundering and financing of terrorism controls as well as middle office services.

EFA is a prime example of the Luxembourg approach, having become an outsourcing partner for institutions across Europe and beyond. With pressure on costs unrelenting, Swedish and other Nordic managers are increasingly attracted by EFA’s outsourced services model and the regulatory and supervisory effectiveness the CSSF -the local financial supervision authority- offers managers based in other jurisdictions.

Efficient, modular and cost-effective

The efficient servicing and regulatory environment covers fund accounting and transfer agency not only for Luxembourg funds but also for those domiciled in other domiciles, which can offer significant complexity and cost savings as well as economies of scale.

EFA is supporting many Nordic asset managers’ efforts in developing their international footprint and asset base, from fund mergers, acquisitions, streamlining to middle office optimisations.

A modular approach allows EFA to match managers pace in transforming their business so that they can set their own terms when it comes to outsourcing. For example, start with TA only and then expand to Fund Accounting and Middle Office is perfectly possible.  

EFA is also independent, with no special ties to other participants in the value chain. For example, customers are free to choose whichever management company or depositary bank they decide fits their needs best.

Environment-minded and international

Shift into the fund industry mainstream of environmental, social responsibility and gover-nance criteria could accelerate the movement toward multi-jurisdiction outsourcing.
It could be bigger than the impact of MiFID II, since investors are seeking reliable, harmonised approaches to ESG definitions and transparent reporting to avoid the accusation of greenwashing. Nordic asset managers, pioneers in the integration of ESG criteria in investment processes and models, should have greater ease and resources implementing the demanding requirements of the European ESG disclosure regulation.  

EFA is supporting their global approach by ensuring that the administration value chain is also “green”. As a UN Global Compact signatory, EFA adheres to the United Nations’ principles in the areas of human rights, labor, the environment, and anti-corruption. In 2019, EFA was yet again awarded by the EcoVadis Gold Recognition level.

EFA has spent over 20 years delivering an efficient service to clients in Luxembourg and beyond, and has more than 10 years’ experience in the Nordic market. We know how to unlock value and enhance performance, no matter what language you speak.