As regulatory obligations and technology costs increase, more European asset managers are turning to third-party management companies. Denis Harty, Waystone’s country head for Continental Europe, discussed the group’s Luxembourg operations, its support for alternative assets and ETFs, the integration of BIL Manage Invest and the governance considerations behind outsourcing.

Sylvain Barrette: Could you share a bit about your background and how you came to join Waystone?

Denis Harty: Despite my Irish accent, which I still haven't quite lost, I have been based in Luxembourg for twenty-five years now. I worked for JP Morgan, Credit Suisse, and other industry participants. I joined Waystone in 2023.

How does Waystone position itself globally and locally in Luxembourg?

D.H.: Globally, we are about 2,000 people across the group. Our largest centres are in the UK and Ireland, while Luxembourg has approximately 150 employees. We are also growing rapidly in the Middle East.

How should decision-makers think about Waystone’s core product lines?

D.H.: Governance services—our third-party ManCo business—are the group’s largest activity, representing approximately 60%–65% of our business. The third-party ManCo model is predominantly European, as the concept of a pure management company does not really exist in the US. In this business, we cover all asset classes.  

Secondly, the administration business represents about 25% of the group's activity and focuses primarily on alternative investment fund (AIF) administration. In Luxembourg, we focus exclusively on third-party administration for the alternative space—including private credit, private equity, infrastructure, and real estate. We do not handle Ucits administration in Luxembourg.

Finally, Compliance Solutions is our consulting business. Its services include compliance audits and the secondment of compliance officers to firms in certain jurisdictions. It represents approximately 10% of our global activity. The business remains relatively small in Luxembourg but is growing strongly in jurisdictions such as the UAE, where specialist skills are in short supply.

What are the primary reasons why prominent asset managers are choosing to partner with a third-party specialist like Waystone rather than running their own structures?

D.H.: At their core, investment managers want to manage portfolios (security selection) and focus on distribution. Everything else required to run a regulated fund in Europe is not their core business. It is a ‘build or buy’ decision. They can either outsource these functions to a specialist like Waystone or build them in-house, which is slower, more complex, and far more expensive.

First, on infrastructure, we offer umbrella platform solutions, such as our Ucits platform. A manager can launch a compartment (or sub-fund) within our existing structure rather than building a fund structure from scratch. This can significantly reduce time to market; a manager can be up and running in as little as three months. For example, Mackenzie (a Canadian manager with a limited initial footprint in Europe) chose to partner with us to leverage this exact infrastructure.

Second, on expertise, we provide specialist capabilities in highly technical asset classes. A prime example is ETFs. We invested heavily in building an expert ETF team six years ago in Ireland. By partnering with us, managers can launch active or passive ETF strategies much faster than trying to recruit and resource an internal team.

Because Waystone is neither an investment manager nor a direct competitor, our model can help address certain conflict-of-interest concerns.

On our proprietary platforms, Waystone appoints board representatives alongside independent members. Depending on the platform, Waystone representatives constitute between half and two-thirds of the board. For client platforms, composition is the client's decision, though Waystone can supply independent directors upon request.

How does outsourcing help mutualise function costs?

D.H.: The regulatory compliance burden should not be underestimated, and it is becoming incredibly technology intensive. Consider the new Ucits supervisory-reporting requirements introduced through AIFMD II, including reporting broadly equivalent to the Annex IV framework for AIFs. An individual manager could spend significant time running project teams to build that reporting capability from scratch.

Alternatively, they can leverage our systems. Waystone can make a single capital investment across its client base, allowing managers to share the cost of technology, reporting and risk-management systems.

You support smaller players, but do you also work with the large asset managers?

D.H.: Yes, absolutely. We support emerging and smaller managers as well as some of the global players such as J.P. Morgan, Franklin Templeton, Citigroup, and UBS. We provide them with the infrastructure and compliance framework required to operate in European jurisdictions, which can otherwise be incredibly heavy. We give them a "plug-and-play" solution so they can focus on generating alpha.

How do you view the jurisdictional dynamics between Ireland and Luxembourg for ETFs?

D.H.: For physically replicated ETFs with significant US equity exposure, Ireland is often favoured because of its tax-treaty treatment of US dividends. If an ETF has high exposure to US equities, Ireland is the dominant choice.

Luxembourg can nevertheless be competitive for managers with an established continental European presence or an existing Luxembourg fund range, particularly where US equity exposure is limited. Recent measures affecting the taxe d’abonnement and ETF portfolio-transparency requirements have also strengthened the jurisdiction’s proposition. Synthetic replication may provide another way to address withholding-tax considerations, depending on the strategy and structure.

Furthermore, Luxembourg has been successful with collateralised loan obligation (CLO) ETFs. Since coupons are not subject to the same dividend tax treaty hurdles, the tax differential has less of an impact.

Our experience with CLO ETFs in Luxembourg is a great example of regulatory cooperation. The CSSF (Luxembourg's regulator) was highly engaging and open to constructive dialogue. We brought in our product experts and walked them through the risks and mitigation strategies. In our experience, the Luxembourg process moved more quickly than the equivalent discussions in Ireland at that time.

How does Waystone support distribution?

D.H.: We support the administrative end of distribution, such as registering the fund across various markets and coordinating with exchanges (like the Luxembourg Stock Exchange) for listings. For managers who lack European regulatory licences, we can also step in to assist via our MiFID-licensed firm in Ireland. However, active selling and distribution networks are typically kept in-house by the managers themselves.

Why do you think some asset managers remain reluctant to outsource to a third party?

D.H.: The main hurdle is control. It is natural for managers to feel that keeping an activity within their own organisation gives them greater oversight of regulatory compliance. Some also worry about sensitive information leaving the institution. Because Waystone is not an investment manager or direct competitor, our model can help address those concerns.

Almost a year after Waystone’s acquisition of BIL Manage Invest, what have been the main outcomes and integration challenges?

D.H.: One of the most positive outcomes has been the contribution of the BIL Manage Invest team. The acquisition brought 26 people into Waystone, and members of that team have since assumed major leadership roles in our combined management company. For instance, the former CEO of BIL Manage Invest is now deputy country head. We also have key leaders from that transaction running our portfolio management and valuation functions. Out of the 26 people who joined us, only three have left.

Realistically, the principal challenge in any integration is managing the people dimension. You need to find the right landing slots for talented individuals and minimise disruption for existing employees as you assess skills and merge teams.

However, it was not a cultural clash. Although our logo is green, Waystone is not strictly an “Irish firm”; we are an international workplace where professionals from all backgrounds work together.

To conclude, what are the major trends that will shape the fund governance sector over the coming years?

D.H.: The primary trend is the continued acceleration of outsourcing. The shift from 6% outsourcing in 2018 to over 20% today is only the beginning. For comparison, fund administration is already 70% to 80% outsourced. Any early regulatory or market hesitation regarding the third-party ManCo model belongs to the past. Even the CSSF has publicly highlighted the robust governance of the larger third-party firms.

Luxembourg currently has around 300 ManCos. Given the market’s scale and increasing regulatory and technology costs, we expect further consolidation. More proprietary managers, including those with significant assets under management, are reassessing whether maintaining an internal ManCo remains the most efficient approach or whether a scaled independent provider offers greater strategic value.