If you invest in an investment fund, you do it through your bank officials or investment adviser. You also know that a professional manager will handle the management of the fund you have purchased.
But these two actors are only the visible part of the iceberg an investment fund is in practice.
For an investment fund to work, a number of different highly specialized experts work hand in hand.
At the origin of each investment fund stands its initiator, or promoter. This is usually a financial institution (a bank, an asset manager, an investment adviser …). The fund promotor takes the initiative to set up the fund.
During the setup phase of the investment fund, lawyers and tax experts start by identifying the ideal legal form of the fund. This depends on many considerations: What type of investor is the fund targeting? What type of assets will it invest in? In which countries and regions will it invest? How will it use the profits made? What will be the fiscal treatment of these profits? What is the fund’s distribution network?… These professionals then create the constitutional documents of the fund, establish contracts with various service providers that will work for the fund and take care of all the necessary steps required to get approved by the competent supervisory authority.
Once the fund is established and approved begins the search for investors interested in participating in the fund by acquiring (“subscribing to”) its shares. Subscription orders – as well as later applications for redemption of fund shares or units – are received and administered by the Registrar and Transfer Agent. This actor is the intermediary between the investors, the fund distributor and the fund itself.
We have already seen an investment fund is required by law to entrust the custody of its assets – whether cash not yet invested by the fund or shares, bonds, derivatives and other financial instruments in which the fund has invested – to a depository bank. In general, the custodian is responsible for managing and ensuring the proper execution of all events relating to the assets held by the Fund
The fund manager invests the money collected by the fund and buys and sells assets on behalf of the fund according to the pre-established investment strategy, always with the aim of achieving an optimal performance for the investor. To do this, he often relies on the support of financial analysts to identify the most promising assets.
All transactions and operations having an impact on the fund’s assets must be recorded. In addition to the bookkeeping of these transactions, the fund accountant also determines the value of the investments made by the fund and calculates the value of its units or shares, the so-called “net asset value” (NAV).
The domiciliary agent provides the investment fund with an address for its correspondence and takes care of all operational aspects of the fund.
The role of the Compliance Officer – whose function is required by law – is to protect the Fund against any damage that could arise from non-compliance with legal, regulatory or deontological rules.
The fund’s annual accounts and financial statements must be audited by a qualified auditor. The auditor also analyzes the key process of establishing the fund’s net asset value and the internal control mechanisms of these processes.
Today, the regulator also requires a number of management and investment fund companies to use the services of a permanent risk management officer. The task of this function is to identify all risks to which an entity is or may be exposed and to define and implement the necessary measures to quantify, manage and monitor these risks.
As a mutual fund is a regulated investment vehicle, it is subject to prudential supervision by the competent supervisory authority. This also applies to the management companies and the managers of alternative investment funds.
The increasing complexity of the investment fund industry has had the outcome that in Luxembourg, a broad variety of companies specialized in these different businesses have developed in recent years.
The brochure “A career in investment funds” published by ALFI gives you a more detailed overview of these various professions and will perhaps inspire you, as its title indicates, to pursue a career in the fund industry.