The private markets offer investors attractive returns, but structuring, processing, and regulating such investments require specialized players. Two key roles in this area are the so-called liability umbrellas and transfer agents. Together, they ensure the smooth and secure processing of investments and foster trust in the processes.
The following outlines what distinguishes these players, how their offerings differ from those in the public capital market, and what services they provide to financial advisors, asset managers, aninvestors.
Liability Umbrellas Take on Regulatory Responsibility
A liability umbrella is a legal construct in the financial industry that allows advisors and intermediaries to operate under a shared license. This is particularly relevant in Germany, where lawmakers impose strict requirements on the regulation of financial services.
- Legal Framework: In Germany, the Banking Act (Kreditwesengesetz, KWG) governs the activities of financial service providers. Individuals who mediate or advise on financial instruments must either have their own license under Section 32 KWG or operate under a liability umbrella.
- Function: The liability umbrella assumes regulatory responsibility for the advisors and intermediaries operating under its umbrella. It is accountable for compliance with legal requirements, such as market supervision by the Federal Financial Supervisory Authority (BaFin).
Transfer Agents as the Link Between Market Participants
A Transfer Agent (TA) functions in the capital market as an interface between investors, funds, and issuers. TAs play a critical role in the processing and administration of investments.
Key Responsibilities of a Transfer Agent:
- Investor Register Management: They maintain detailed records of the ownership of fund shares or other securities.
- Transaction Processing: This includes the transfer of ownership titles and the distribution of dividends or yields.
Differences from Functions in Public Markets
In the public markets, liability umbrellas are largely irrelevant, as banks, brokers, and securities houses hold their own licenses. In private markets, however, liability umbrellas are indispensable, especially for smaller or specialized asset managers who do not wish to build their own regulatory infrastructure.
Liability umbrellas are particularly important during the capital-raising phase for private markets investments. They enable advisors to distribute regulated fund products, such as ELTIFs, to their clients in compliance with the law. In doing so, they ensure adherence to all legal requirements, thereby strengthening investors’ trust in both the advisor and the product.
Transfer agents also differ depending on the market. In the public capital market, they manage large volumes of securities transactions, often automated and standardized. In private markets, however, the processes are more individualized and complex, especially for alternative investments.
ELTIFs: Access to Long-Term Investments
ELTIFs provide institutional and private investors with access to long-term investments in sectors such as infrastructure, private equity, and private debt. Through digital distribution platforms for alternative investments, like the one offered by portagon, financial and asset advisors, as well as family offices and banks, can operate within a compliance- and regulatory-safe framework when investing their clients’ funds in private market shares.
Liability Umbrellas and Transfer Agents Support Advisors
Collaboration with liability umbrellas and transfer agents offers distributors, such as financial and asset advisors, benefits beyond regulatory security and processing and custody services – both in their daily work and in client relationships.
- Cost and Time Savings: Licensing and meeting regulatory requirements independently is costly and time-consuming. Liability umbrellas offer a “plug-and-play” solution that simplifies market entry for advisors.
- Access to Exclusive Products: Through liability umbrellas, advisors gain access to regulated investment funds and specialized products that they could not offer without a license. This expands their offerings to clients and strengthens their position.
- Reporting and Communication: Transfer agents ensure that investors are regularly informed about their investments and assist with regulatory requirements such as tax reports.
- Long-Term Security with ELTIFs: Since ELTIFs are designed for long-term investments, precise documentation and administration are crucial. Transfer agents guarantee correct processing throughout the entire term of the fund.
Key Pillars of Private Markets
Private markets are gaining increasing significance, and liability umbrellas and transfer agents are key pillars of this market. They build trust by minimizing regulatory and operational risks. With growing interest and tailored offerings for private investors – known as retailization – rule-based processes are becoming increasingly important. These players are thus indispensable for secure collaboration between investors, advisors, and asset managers.