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Title … Times New Roman 25pt, Line spacing 25pt Title 2 ...

  1. 1. Alternative Investment Fund Managers Draft Directive Based on December 15, 2009 version and the Gauzes report. Content and Opportunities January 2010
  2. 2. AGENDA 1 Context 2 Objectives 3 Scope 4 Timeline 5 AIFMD in details 6 Impacts on markets 7 Luxembourg’s perspective 8 Deloitte’s Service Offering and Contacts 2 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  3. 3. CONTEXT OF THE AIFM DIRECTIVE • Alternative Investment Fund Managers Impact on market for (“AIFM”) are vulnerable to a wide range of corporate risks that directly concern investors creditors, control trading counterparties and the stability and Impact on Market integrity of European financial markets. companies efficiency controlled and • Currently, the activities of AIFM are regulated by AIFM integrity at a national level which does not adequately reflect the cross border nature of the risks. Financial Crisis • AIFM Directive (“AIFMD”) aims at enhancing transparency and quality in the universe of Alternative Investment. Systemic Micro- Risks prudential • Should come into force in 2011 and is (Macro- risks expected to be voted by European Union prudential) (“EU”) Parliament in July 2010. Investor • Transitory provision of one year protection • Cover all non-UCITS structures (PE, HF, RE, Infrastructure, commodities…) DRAFT EU Directive on Alternative Investment Fund Managers (AIFM) 3 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  4. 4. AGENDA 1 Context 2 Objectives 3 Scope 4 Timeline 5 AIFMD in details 6 Impacts on markets 7 Luxembourg’s perspective 8 Deloitte’s Service Offering and Contacts 4 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  5. 5. AIFM DIRECTIVE’S OBJECTIVES Key Objectives Specific objectives  Extend regulation and oversight to all  Ensure that all AIFM are subject to actors and activities that embed appropriate authorization and significant risks. registration requirements;  Provide a framework for the enhanced  Introduce harmonized requirements at monitoring of macro-prudential risks; a European level for entities engaged  Improve risk management and in AIFM in alternative investment. organizational safeguards to mitigate micro-prudential risks;  Funds domiciled within the EU can be  Enhance investor protection; marketed by authorized AIFM and  Improve public accountability for benefit from AIFM Passport Alternative Investment Funds (“AIF”) holding controlling stakes in companies;  Develop the single market for AIFM. ! This support is based on the proposed version of the AIFMD released on 15/12/09 by the Swedish Presidency of the Council of the European Union (aka version 3) and outline the proposal of the Gauzès report (Parliament Reporter) that somehow differ from Presidency proposal. 5 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  6. 6. AGENDA 1 Context 2 Objectives 3 Scope 4 Timeline 5 AIFMD in details 6 Impacts on markets 7 Luxembourg’s perspective 8 Deloitte’s Service Offering and Contacts 6 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  7. 7. AIFM DIRECTIVE’S SCOPE AIF are collective investment undertaking which are not regulated under UCITS directive, i.e. hedge funds, All EU AIFM which manage one or more EU AIF which can benefit private equity, real estate from EU passport funds, commodity funds, Who is concerned infrastructure funds and Partial exemptions if AIF is non-EU and/or not marketed in the EU other type of institutional funds. No exemption under the Gauzès report • AIFM managing AIF portfolios with total assets of less than €100 million The Gauzès report has • AIFM which only manage AIF which are not leveraged and which do deleted the threshold not grant investors redemption rights during a period of five years exemption as it currently following the date of constitution of each AIF, a threshold of €500 exists in the Swedish Several million applies Presidency proposal, exceptions • Supranational institutions hence increasing • National Central banks and public bodies (or others) managing substantially the scope of state/public pension/benefit schemes AIFM falling under the • Special Purposes Entities (securitization) Directive. The Gauzès • Intra-group exemption for AIFM in respect of AIF whose only report underlines also investors are fellow group companies of the AIFM (unless an securitization vehicle investor is itself an AIF) within the scope of AIFM. Supervisory attention will be focused on the areas where risks are concentrated, which represents 30% of hedge fund managers and 90% of EU domiciled funds. 7 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  8. 8. AGENDA 1 Context 2 Objectives 3 Scope 4 Timeline 5 AIFMD in details 6 Impacts on markets 7 Luxembourg’s perspective 8 Deloitte’s Service Offering and Contacts 8 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  9. 9. AIFM TIMELINE 9 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  10. 10. AGENDA 1 Context 2 Objectives 3 Scope 4 Timeline 5 AIFMD in details 6 Impacts on markets 7 Luxembourg’s perspective 8 Deloitte’s Service Offering and Contacts 10 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  11. 11. AIFM IN DETAILS Definition of Agreement investment management services Conditions Self-managed entity Marketing/Third countries AIFM Depositary Reporting & Leverage Delegation Remuneration 11 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  12. 12. AIFM IN DETAILS-DEFINITION OF INVESTMENT MANAGEMENT SERVICES AIFMD gives a list of tasks an AIFM can perform/ delegate 1 Investment • Portfolio management Management • Risk management 2 • Legal and fund management accounting services Administration • Customer inquiries • Valuation and pricing (including tax returns) • Regulatory compliance monitoring • Maintenance of unit-/shareholder register • Distribution of income • Unit/shares issues and redemptions • Contract settlements (including certificate dispatch) • Record keeping 3 • Direct or indirect offering or placement at the initiative of the AIFM or on behalf on Marketing the AIFM, of shares or unit in an AIF it manages to or with investors domiciled in the EU 12 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  13. 13. AIFM IN DETAILS-SELF-MANAGED ENTITY AIFMD recognizes the case where the AIF is internally managed (art. 5a) 1 Conditions • AIF should be managed internally either by governing body (Board) or by other internal resource • No external AIFM has been designated 2 • Therefore, the AIF is also the AIFM and should comply with AIFM’s requirements Consequences for AIFM • However, an AIF internally managed can decide to appoint an external AIFM ! An AIFM which is an internally managed AIF cannot be the external manager of another AIF 13 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  14. 14. AIFM IN DETAILS-DEPOSITARY 1 Depository AIFM has to ensure that following depositary tasks are fulfilled (art. 17) • All payments to be done at subscription/redemption are correctly booked tasks • Safe-keeping of AIF’s financial instruments and other securities (“assets”) • Check on none re-use of financial instruments without AIFM consent (rehypothecation issue) • Issue, redemption, cancellation and NAV of shares/are done according to national laws and AIF instruments of incorporation 2 Depositary could be either: Type of depositories • A credit institution or an investment firm (as defined under MIFID Directive) established within the EU or a supervised legal person with guarantees and prudential regulation Not in the Gauzès • Custody can only be delegate if objective reasons can be demonstrated report • Sub-depositary from third country can be appointed for safe-keeping tasks if:  Supervised in its jurisdiction;  It has structures and expertise that are adequate and proportional to the nature, scale and complexity of the AIF;  It is subject to periodic audit to assess assets possession;  It segregates assets from its own ones;  It cannot use AIF’s assets without its consent; and  Depositary shall perform due diligences and review on an ongoing basis 3 In case of loss on assets, depositary has to return financial instruments of the Loss on identical type or corresponding cash amount without undue delay The Gauzès report assets • Delegation to sub-depositary has no impact seeks to align the • Depositary, may on a contractual basis, discharge from its liability if it can responsibilities with prove it has fulfilled its obligations (selection and review of sub- those of the UCITS depositary) and there’s objective reasons for such discharge directive - This would further be detailed by Level 2 regulation 4 • Depositary is liable to AIFM, AIF and AIF investors for any other loss following its failure to perform its Other obligation defined in the AIFMD information • Depositary shall be established in the same EU country as the AIF 14 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  15. 15. AIFM IN DETAILS-DELEGATION AIFM is the legal person who manages AIF and is responsible for compliance with AIFMD  Has to obtain regulatory approval prior notify to authorities if wants to delegate and Conditions has to make due diligences on an ongoing basis (art. 18) • third party must be experienced and of good repute; • delegation should not conflict with investors best interests The Gauzès report: • AIFM must be able to demonstrate he performed due • Only delegate to AIFM (i.e.: domiciled in EU) diligences and that he can monitor, give instruction and • Introduces liquidity withdraw delegation at any time management • delegation of portfolio and/or risk management:  delegate has to be authorised or registered for this purpose and subject to supervision  if in a third country, need for effective cooperation between supervisory authorities  No delegation of portfolio management or risk management to the depositary and no delegation leading to a conflict of interests (unless they can be managed, will be clarified in Level 2 regulation).  Sub-delegation is possible as long as above rules are fulfilled. However and in any case, AIFM keeps ultimate responsibility  Moreover, delegation should not result in a simple letter-box activity of the AIFM ( needs for substance, cfr UCITS regulations) 15 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  16. 16. AIFM IN DETAILS-REMUNERATION • The Gauzès report and the Swedish Presidency report state the requirement of remuneration policies and practices regarding remuneration policies • Adoption of the G20 recommendations on pay for banks & financials institutions • Swedish Presidency report considers these should be consistent Conditions with effective risk management and do not encourage non appropriate risk-taking: ‒ Remuneration policy should be in line with nature, scale and complexity of AIFM activities and AIFs managed ‒ At least 40% of the variable pay should be deferred over the life-cycle and redemption period of the fund ‒ Remuneration should also be disclosed in the fund’s annual reports 16 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  17. 17. AIFM IN DETAILS-REPORTING & LEVERAGE AIFMD recognizes the case where the AIF is internally managed (art. 5a) • AIFM shall report/disclose periodically on the following (inter alia): ‒ Any contractual discharge applicable with the Depositary The Swedish Presidency has suggested that the ‒ Percentage of illiquid assets « controlling influence » Conditions ‒ Strategies, assets types, pricing methodology, fees policies, threshold be set at 50% for ‒ Organisational, risk and liquidity management arrangements unlisted companies. The ‒ Degree of leverage employed (on quarterly basis to investors) Gauzès report removed thresholds currently and ‒ Controlling interest acquired in companies > 50% reportable focus merely on effective ‒ Strategies, assets types, pricing methodology, fees policies, controlling influence, redemption/subscription rules, AIF historical performance, especially for private equity liquidity risk management description to investors funds. • Audited annual report for each AIF available within four months after financial year end • Home MS should assess risks and impose limits on level of leverage employed by an AIFM From the Gauzès report, significant short positions must be reported to MS authorities • The Gauzès report has requested that fund promoters should define and limit the amount of ! 17 leverage undertaken by an AIFM. These limits must be disclosed to the fund’s national regulator. • Level 2 regulation expected to define/clarify several issues with leverage: ‒ Occasional excess of the threshold during the year ‒ What is leverage used on a systematic base and how to be calculated Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  18. 18. AIFM IN DETAILS-MARKETING OF AIF and THIRD COUNTRIES 1 The AIFM proposes a number of measures in relation to the marketing of AIF to Application of professional investors :: AIFMD • AIFM that manage AIF established in a EU Member State benefit from the EU passport. This provision should not be circumvented through a master-feeder structure. • An EU Member State may allow the marketing of AIF to retail investors on their territory. 2 National Private • An authorized AIFM may manage AIF based in a non-EU country only if that Placement country has legislation which is in line with international standards and that there is appropriate cooperation between the countries. The AIFM may then distribute this non-EU AIF to professional investors on a private placement basis. little difference between the current requirements on the distribution of non-EU AIF and those proposed by the current draft AIFM Directive. Under existing regulations, non-UCITS funds can be widely distributed in a number of EU countries on a private placement basis. 18 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  19. 19. AIFM IN DETAILS-CONDITIONS 1  Conflicts of interest Conduct of  Risk management: implement systems (i.e.: due diligence process, stress testing Business procedure, risk profile compliance) to measure and monitor all risks associated to each AIF investment strategy and to which each AIF is or can be exposed to. Should be reviewed at least once a year.  Liquidity management: employ an appropriate liquidity management system and procedure (stress tests and redemption policy appropriate) only for open-ended funds 2  Minimum capital of EUR 125.000: Capital • but additional capital is required if the assets under management exceed EUR Requirements 250 million (0.02% above EUR 250 million) with a 10 million cap (but possibility to benefit from guarantee from credit institution/insurance up to 50%) • For self-managed AIF, capital requirement set at minimum EUR 300.000 (same rules as above) 2  Valuation: appropriate and consistent procedures Organizational established by the AIFM for proper valuation of assets The Gauzès report Requirements managed, at least yearly or more frequently (for open- provides exemption of this rule for private ended funds considering assets types and equity funds subscriptions/redemptions policies). AIFM has to ensure functional independence. If no external valuator, authorities can ask procedures/valuation review from external valuator or auditor 19 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  20. 20. AIFM IN DETAILS-AGREEMENT To market shares or units of AIF to professional investors in the home Member State, AIFM will have to obtain authorization from the competent authority of their home Member State. The AIFM shall submit a notification in respect of each AIF that it intends to market. Objective  Demonstrate that they are suitably qualified to provide AIF management services  Provide detailed information: How ? • the planned activity of the AIFM, • the identity and characteristics of the AIF managed, • the governance of the AIFM (at least 2 conducting officers with knowledge of underlined strategy) • arrangements for the valuation of assets, • arrangements for safekeeping the assets, • the systems of regulatory reporting, where required.  Ensure that the risks linked to AIFM activities are managed to satisfy the competent authority of the robustness of internal arrangements Authorization could also be granted to allow: • marketing of AIF to retail investors and/or in other Member States* • provision of management services in other Member States* ! Due to the diversity of AIFM investment strategies, there will be a common set of basic provisions and some specific provisions. * The directive explicitly provide Specific rules in relation to third countries 20 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  21. 21. AGENDA 1 Context 2 Objectives 3 Scope 4 Timeline 5 AIFMD in details 6 Impacts on markets 7 Luxembourg’s perspective 8 Deloitte’s Service Offering and Contacts 21 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  22. 22. AIFM DIRECTIVE – COMMENTS FROM THE MARKETS EVCA representing the Private Equity industries AIMA representing the Hedge 1.Scope and thresholds: concern with the Fund industries (views on the abolition of the thresholds and hence Gauzès report) disadvantaging small funds 1.Scope and thresholds: No 2.Capital requirements: welcome the EUR 10 cap specific comment. Agree with the but still argue that the variable capital removal of thresholds requirements is unjustified 2.Leverage : Lacks clarity 3.Valuation: welcome the abolition of the external valuer 3.Short-selling: Should be taken Comments out of the Directive as it is a 4.Transparency: Still concern with the treatment from market wide issue of confidential information. In favour of Gauzès the market report that portfolio companies should not be 4.Remuneration: Welcome the more stringent than other companies but still emphasis on aligning the Directive need to see this in the articles of the directive with the G20 principles 5.Remuneration: Strongly opposed this 5.Depositary: Lacks clarity 6.Depositary: Remains unsatisfactory and not 6.Distribution: Find concerning the sufficiently tailored to private equity restriction on fund of funds 30% rule where the target fund is a 7.Distribution: Most stringent rules removed but third country AIF still concern on the free movement of capital particularly the case for third party AIFM to benefit from passport even if regulated 22 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  23. 23. AGENDA 1 Context 2 Objectives 3 Scope 4 Timeline 5 AIFMD in details 6 Impacts on markets 7 Luxembourg’s perspective 8 Deloitte’s Service Offering and Contacts 23 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  24. 24. AIFM DIRECTIVE – LUXEMBOURG'S PERSPECTIVE Current trends Products Industry • Trends «Offshore to Onshore» • Luxembourg’s existing legal • Luxembourg industry or «Unregulated to Regulated» framework ( SIF regime) copes (regulator, advisers, auditors, are not new and will be already with most of the custodians, administrators) reinforced by the AIFMD requirements imposed by the have in debt AIFMD on AIFs knowhow/experience in • The AIFMD aims at granting a relation to all alternative EU passport to AIF: Luxembourg • Luxembourg’s offering (FCP/ asset classes is a recognized Centre of Sicav/SCA, umbrella structure, Excellence for cross-border multiple classes) is well adapted • Luxembourg’s legal offerings to the needs of the various framework permits easy strategies and asset classes redomiciliations/relocations • Luxembourg industry (regulator, to Luxembourg and industry advisers, auditors, custodians, • In the structuring of participants have extensive administrators) have in debt Luxembourg AIFMs, practical experience in know-how/experience in relation Luxembourg can leverage on arranging/handling to regulated structures existing UCITS management redomiciliations companies • All-encompassing approach of • Possibilities for listing on the the AIFMD (open end and closed • Non-UCITS management Luxembourg Stock end funds; hedge funds, fund of companies can be easily Exchange hedge funds, real estate funds, adapted to the requirements of private equity funds; etc.) will the AIFMD7. require flexibility in structuring 24 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  25. 25. AGENDA 1 Context 2 Objectives 3 Scope 4 Timeline 5 AIFMD in details 6 Impacts on markets 7 Luxembourg’s perspective 8 Deloitte’s Service Offering and Contacts 25 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  26. 26. DELOITTE - INVESTMENT MANAGEMENT SERVICES 1. Market knowledge • Serving 30 out of the 40 Top fund Regulatory, promoters Strategy & Compliance and Organization • Advised or assisted on most of the Fund Registration largest transactions on the market during the last 5 years • Providing Strategy and Operational support to all the leading third party SAS 70 Fund & Tax Certification clients service providers reporting 2. Strong expertise Deloitte’s • Proficient operational expertise across the complete value chain Investment Deloitte’s • Continuous research and publication Management Investment efforts to support industry Management Fund Systems developments Capital Markets for Services Funds Services • A mix of project/consulting expertise with hands-on industry experience 3. Multidisciplinary approach • Balance and synergies between the 3 service lines (Audit, Tax and Consulting) Forensic Services IFRS Advisory • Cross-service expertise in key functional or topical areas (e.g. Investment Management, Alternative investments, Banking operations, etc.) 26 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  27. 27. YOUR DELOITTE KEY CONTACTS Luxembourg – Investment Management Services Vincent Gouverneur Johnny Yip Partner – EMEA Investment Management Leader Partner Tel: + 352 451 452 451 Tel: +352 451 452 489 Email: vgouverneur@deloitte.lu Email: jyiplanyan@deloitte.lu Philippe Lenges Xavier Zaegel Partner Partner Tel: + 352 451 452 414 Tel: +352 451 452 748 Email: plenges@deloitte.lu Email: xzaegel@deloitte.lu Lou Kiesch Benjamin Collette Partner Partner Tel: + 352 451 452 456 Tel: +352 451 452 809 Email: lkiesch@deloitte.lu Email: bcollette@deloitte.lu Benjamin Lam Partner Tel: + 352 451 452 429 Email: blam@deloitte.lu Luxembourg – Tax Raymond Krawczykowski Pascal Noel Partner – Partner Tel: + 352 451 452 500 Tel: +352 451 452 571 Email: rkrawczykowski@deloitte.lu Email: pnoel@deloitte.lu 27 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.
  28. 28. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in 140 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's 165,000 professionals are committed to becoming the standard of excellence. Deloitte's professionals are unified by a collaborative culture that fosters integrity, outstanding value to markets and clients, commitment to each other, and strength from cultural diversity. They enjoy an environment of continuous learning, challenging experiences, and enriching career opportunities. Deloitte's professionals are dedicated to strengthening corporate responsibility, building public trust, and making a positive impact in their communities. Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms. 28 Alternative Investment Fund Managers Directive (“AIFMD”) © 2010 Deloitte S.A.

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