Asset Management Foundation

What is an asset management foundation?

An asset management foundation is a wealth planning and asset management structure established to manage assets contributed by its founder, use the income generated by those assets for the purposes and objectives specified in the instrument of foundation, and make distributions to designated beneficiaries.

The essence of this legal institution is that, similarly to trust asset management, the founder does not leave the future disposition of the assets solely to the rules of succession. Instead, the founder may determine in advance the principles governing asset management, the class of beneficiaries, and the conditions, timing and amount of distributions. This may be particularly relevant where the objective is to preserve family wealth as a coherent whole, regulate its intergenerational transfer, or ensure its considered, long-term management.

An asset management foundation is therefore more than a conventional foundation. It provides an institutional framework for preserving, managing and deploying assets in the future and, where appropriate, may also carry on economic activities connected with asset management. The structure enables the founder to establish durable principles for managing the assets while ensuring that distributions to beneficiaries are made transparently and according to predetermined rules.

An asset management foundation is an independent legal entity with its own governance and control framework. Assets contributed to the foundation are recognised as the foundation’s own property, and the foundation exercises the related ownership and asset management rights within the framework laid down in its instrument of foundation and investment policy.

What is an asset management foundation used for?

The primary function of an asset management foundation is the long-term management of wealth. The statutory framework is based on the principle that income generated from the management of contributed assets may serve the purposes specified in the instrument of foundation and may also be distributed to designated beneficiaries. The structure is therefore particularly suitable where the objective is not a one-off transfer of assets, but detailed and institutionalised planning for their future.

In practice, the founder may determine not only which assets are contributed to the structure, but also the principles according to which they are managed and the conditions under which beneficiaries may receive distributions. Typical objectives include preserving assets as a coherent whole, defining an investment policy, and specifying in advance the timing and eligible recipients of distributions.

An asset management foundation may therefore be useful where the founder wishes to influence the future of the assets over an extended period. Examples include planning a business succession, managing family wealth in a structured manner, or ensuring that distributions are made according to predetermined principles.

The structure may be used not only for the long-term management of private and family wealth, but also for business assets, corporate interests and group structures. Subject to appropriately designed rules, it may support business succession, continuity in the exercise of ownership rights, institutionalised investment decision-making, and the considered tax and legal treatment of certain business disposals or group reorganisations.

The role of founder’s rights

A key consideration when designing an asset management foundation is which rights the founder retains and which decision-making powers are transferred to the foundation’s governing bodies or other persons. The instrument of foundation may regulate, among other matters, the exercise of founder’s rights, the amendment of the instrument of foundation, the appointment of the board of trustees or a sole trustee, and the person who will exercise the founder’s rights following the founder’s death or upon the occurrence of another specified event.

Legal framework for asset management foundations

The specific rules governing asset management foundations are set out in Act XIII of 2019 on Asset Management Foundations. The Act applies to foundations established in accordance with its provisions and registered by a court as asset management foundations. Unless the Act provides otherwise, the rules of Act V of 2013 on the Civil Code governing foundations also apply.

Under the rules currently in force, an asset management foundation may, as an economic activity, manage assets contributed to it or placed under its long-term management for this purpose. The regulatory framework therefore centres on asset management: the foundation is not a general-purpose commercial entity, but a specialised form of foundation established to perform an asset management function.

The legislation also contains detailed rules on establishment, governance, asset oversight, the instrument of foundation and the framework for asset management. Establishing and operating an asset management foundation therefore requires careful preparation not only from a civil-law perspective, but also from accounting, tax and governance perspectives.

Establishment requirements

One of the principal conditions for establishing an asset management foundation is that assets with a value of at least HUF 600 million must be contributed to the foundation and made available to it before the application for court registration is filed. The contributed assets must be specified individually in the instrument of foundation, with sufficient detail to enable their identification.

The contribution need not consist solely of cash. It may also include real estate, quotas or other ownership interests in limited liability companies, shares and other investment assets. Where non-cash assets are contributed, their valuation, documentation and accounting treatment require particular advance planning.

The instrument of foundation must be executed as a public deed or as a private deed countersigned by a lawyer, and legal representation is mandatory in the court registration proceedings. The instrument must also specify the fundamental objectives and principles governing the management and use of the foundation’s assets. The founder may attach an investment policy or arrange for one to be prepared subsequently. The timing and technical implementation of the asset contribution are key aspects of the establishment process and may require coordinated legal, banking, accounting and tax input.

Governance features

As a general rule, the executive and decision-making body of an asset management foundation is a board of trustees, although the legislation also permits the appointment of a sole trustee. When selecting the governance model, relevant considerations include the extent to which the founder wishes to retain strategic influence and the decision-making, oversight and succession mechanisms to be incorporated into the foundation’s operations.

As a general rule, the legislation also requires a supervisory board and a permanent statutory auditor. In the case of an asset management foundation that is not a public-interest asset management foundation, the instrument of foundation may provide that no supervisory board will operate; in that case, its functions and powers are exercised by the foundation’s asset controller. The applicable rules treat the asset controller as an independent control function responsible for monitoring whether asset management complies with the objectives and principles laid down in the instrument of foundation.

How does an asset management foundation operate?

The central governing document of an asset management foundation is its instrument of foundation. This document must specify the foundation’s purpose, the principal framework for the managed assets, the class of beneficiaries and the distribution regime. The rules also allow the founder to set out more detailed investment principles and conditions governing the use of assets, which may be particularly important in long-term wealth planning.

The foundation manages the assets contributed to it and, where applicable, assets placed under its long-term management in accordance with the principles established by the founder. The structure ensures that the assets and the income they generate are used under a predetermined framework rather than on an ad hoc basis. In practice, certain assets may be retained by the foundation over an extended period, while returns on other assets may be distributed to beneficiaries upon the occurrence of specified life events or upon reaching a particular age.

The legislation also protects the preservation of capital. If the foundation’s assets fall below the minimum level specified in the instrument of foundation, or in the absence of such a provision below the statutory minimum capital, distributions to beneficiaries must be reduced proportionately or withheld until the assets again reach the required level. This further reflects the structure’s focus on disciplined, long-term asset management.

How does an asset management foundation differ from trust asset management?

Asset management foundations and trust asset management arrangements share certain features, but they are not identical. A trust asset management arrangement is based on a wealth planning relationship involving three parties: the settlor, the trustee and the beneficiary. Its legal framework is provided by the trust asset management provisions of the Civil Code and the separate legislation governing trustees.

By contrast, an asset management foundation is established and operates as a legal entity in its own right, with its own governance structure, board of trustees and oversight mechanisms. At the same time, the Act on Asset Management Foundations expressly provides that, unless otherwise specified, the Civil Code rules governing trust agreements also apply mutatis mutandis to assets placed under the foundation’s long-term management. The two structures therefore follow partially related principles but operate within different legal frameworks.

Related Andersen services

• Tax and structural planning for the establishment of an asset management foundation.
• Tax analysis of asset contributions, beneficiary distributions and transactions arising during the foundation’s operation.
• Tax review of founder’s rights, the class of beneficiaries and distribution rules.
• Tax and accounting review of contributions of non-cash assets, including real estate, quotas or other corporate interests, and shares.
• Tax review of the instrument of foundation, the investment policy and the governance structure.
• Support with accounting, tax compliance and reporting matters relating to the asset management foundation.
• Assistance in managing tax authority enquiries, requests for official guidance and uncertainties of legal interpretation.
• Ongoing monitoring of legislative developments and official interpretations affecting asset management foundations.