Roles and responsibilities

In the context of setting up, distributing and managing an investment fund there are various areas of specialisation and competence, which are explained in what follows.

Distribution, sales and marketing

Investment funds are typically offered to investors through banks, independent financial advisors and life assurance companies. They can also be distributed directly by the fund management company. There are clear guidelines for the marketing of an investment fund and all fund documentation must comply with the supervisory authorities' regulations. Financial advisors are qualified to provide investors with advice and recommendations on their specific needs and will, as a rule, offer their clients access to a wide range of investment funds. Banks and insurance companies can offer funds set up and managed by their own group or by another provider. A fund management company will normally only sell or redeem shares in its own funds.

Portfolio and risk management

Fund managers decide how to construct a portfolio of assets that will achieve the fund’s particular investment objectives. The portfolio of underlying assets must adhere to the parameters outlined in the fund’s prospectus. The fund manager often uses the specialist expertise of analysts to identify investment opportunities and highlight new trends. Many analysts and fund managers focus their expertise and research on particular asset types, sectors or regions and therefore have a comprehensive knowledge of their specialist field.

The fund manager takes responsibility for the investment decisions. A risk management process must be employed that enables the UCITS fund to monitor and measure at any time the risk of its positions. In taking the investment decisions, the fund manager must ensure that the investment fund remains within its investment limits and does not exceed its risk boundaries, including any use of derivatives or borrowing. The decisions are then reviewed by risk specialists. Assets are bought and sold to order by dealers who execute the fund manager’s decisions. They ensure that the assets are always bought or sold at the best possible price for the fund.

Administration

Administration staff are responsible for all the processing that is done in the ‘back office’. Their functions include calculation of the Net Asset Value, preparation of reports, settlement of securities, measurement of the fund's performance, and the administration of client accounts. UCITS funds also have an independent custodian bank whose responsibility is the safekeeping of the fund’s assets.

Oversight and regulation

The custodian bank is a service provider to the fund but also performs important oversight and monitoring functions. The investment fund’s annual audit, carried out by independent auditors, also has a monitoring function, in that it is intended to confirm that the accounts and results published in the annual financial statements give a true and fair view of the fund’s financial position.

Not only the fund itself but also management companies and professional financial services providers such as administrators and custodian banks are subject to oversight by the national financial regulators. In Luxembourg, the regulator is the Commission de Surveillance du Secteur Financier (CSSF). In certain cases the European Commission in Brussels can also intervene to protect the interests of investors if the rules of the EU single market are being broken.

Industry organisations

ALFI is the umbrella organisation for the fund industry in Luxembourg, representing the interests of investment funds and many other types of companies involved in establishing and managing funds in the country. There are comparable organisations in other countries, and these may belong to EFAMA, the European Fund and Asset Management Association, which represents the industry in dealings with the European Union and on the global stage. There are also other national and European associations of investors and shareholders, which defend investors 'rights and interests.