Actively Managed Certificates (AMCs), also known as portfolio-linked notes, performance-linked bonds, or tracker certificates, have emerged as a powerful and flexible financial instrument, capturing significant attention in the asset management industry. These certificates are essentially debt securities issued by a financial institution or a special purpose vehicle (SPV) that track the performance of an underlying, actively managed portfolio. AMCs are not collective investment schemes (CIS), which are heavily regulated, but rather securitized investment strategies. This distinction is the primary reason for their dramatic rise in popularity.
The EU’s Regulatory Reform and Its Unintended Consequences
The primary catalyst for the widespread adoption of AMCs can be traced back to the European Union’s regulatory reforms, specifically the Alternative Investment Fund Managers Directive (AIFMD), which was implemented between 2009 and 2013. AIFMD was justified as bringing greater transparency and oversight to the alternative investment sector, but it had a profound and negative impact on small and medium-sized asset managers. Under the new rules, any firm managing a collective investment scheme was required to be a fully regulated entity. This move, seen by many as favoring large financial institutions, created a significant administrative and financial burden that many smaller managers simply couldn’t bear. As a result, numerous private asset managers in the EU were forced out of business, consolidating the market in the hands of “Big Finance.”
Switzerland’s Business-Friendly Approach
In response to the EU’s restrictive regulations, a solution was developed on Swiss soil to help displaced asset managers and their investors. Switzerland’s financial market regulator, the Swiss Financial Market Supervisory Authority (FINMA), does not classify these packaged portfolios as “collective investment schemes.” Instead, they are considered structured products, which do not require the asset manager to be a fully regulated entity. This key regulatory distinction allowed private asset managers to continue their business by packaging their managed portfolios into a security (the AMC) without the onerous requirements of AIFMD. The person responsible for the portfolio management is often termed a “strategy sponsor,” emphasizing a consulting role rather than a regulated manager. This progressive, business-friendly stance allowed Switzerland to attract a substantial amount of asset management business away from the bureaucracy-ridden EU.
Structure and Issuance: Where and How
An AMC is structured as a security that provides investors with exposure to an underlying, dynamic portfolio. This portfolio can be adjusted by the strategy sponsor based on market conditions, offering a level of flexibility not always available in traditional funds. Issuers of AMCs are often banks or special purpose vehicles (SPVs), which are legal entities created specifically for this purpose.
The jurisdiction chosen for the AMC’s issuer is crucial. The Cayman Islands has become the undisputed leader in this space due to its favorable legal and corporate framework. Other jurisdictions, such as Guernsey, are legally viable but often impose stricter requirements on the issuer, such as mandating local directors and management. Hong Kong SPVs may also be used, though they are more suitable for securities with less active management. The rise of AMCs represents a significant shift in the financial landscape, showcasing how a strategic regulatory advantage can create a thriving market for innovative financial products and provide a lifeline to a segment of the industry that was severely impacted by new regulations.
Tiner Wernow (formerly John Tiner & Partners) designs and creates securities and other financial instruments that help our clients raise capital, sell managed trading strategies, and securitize a wide range of assets.
We offer a full-cycle service, guiding you from the initial structuring concept through complete implementation. This includes obtaining an ISIN (International Securities Identification Number), issuance, global clearing, exchange listings, and placement routes. Our goal is to transform any asset or investment idea into a globally cleared, easily tradable security.
Our global services platform, 208Markets (208markets.com), provides issuance, brokerage, and SPV maintenance services across multiple jurisdictions.
Educational materials appearing on the internet under the “Tiner Educational Hub” aim to help professionals become more aware of the securitization tools available to achieve their business goals efficiently.