2017 Professional Practice Update · December 2016 3 701.076 EUR bn Growth rate 12 months 5.56% EUR...

2017 Professional Practice Update

“Investment Fund Industry”

1 March 2017, Luxembourg

Agenda

08:30 – 09:00 Registration & breakfast

09:00 – 09:05 Chairperson’s opening remarks

Jason Rea, Chairperson, ABIAL

09:05 – 09:30 State of the Luxembourg Investment Fund Industry

Anouk Agnès, ALFI

09:30 – 10:00 Fund distribution evolution

Said Fihri, KPMG

10:00 – 10:30 Legal & regulatory update

Jérôme Wigny, Avocat, Elvinger Hoss Prussen

10:30 – 11:00 Coffee Break

1 March 2017 ABIAL - PPU 2

11:00 – 11:50 Panel discussion incl. Q&A

Brexit – practical implications and impact on fund industry

Moderator: Michael Ferguson, EY

Panel: Johan Terblanche, Dechert

Johan Schreuder, Investec

Revel Wood, FundRock

Sandrine Leclercq, Deloitte

11:50 – 12:20 Tax Update

Keith O’Donnell, ATOZ

12:20 – 12:30 Chairperson’s concluding remarks

Jason Rea, Chairperson, ABIAL

12:30 – 13:30 Buffet Lunch

Agenda

31 March 2017 ABIAL - PPU

State of the Luxembourg Investment Fund Industry

Anouk Agnès, ALFI

41 March 2017 ABIAL - PPU

Net assets of Luxembourg domiciled UCIs

Luxembourg market

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000December 2016

3 701.076 EUR bn

Growth rate

12 months

5.56%

EUR billions

Figures as at December 31, 2016 Source: CSSF

Luxembourg market

-200

-150

-100

-50

0

50

100

150

200

250

J F M A M J J A S O N D

Net Subscriptions Market performance

Var./previous month Cumulative growth

over 12 months

Cumulative

net subscriptions

Cumulative

market performance

EUR billions

Components of net asset growth

Monthly evolution

over 12 months to date

Growth 5,56%

194.88 Eur Bn

96.13 Eur Bn

Market Performance (cumul)

Net sales (cumul)

98.75 Eur Bn


Number of Luxembourg fund units

Luxembourg market

Number of Luxembourg domiciled funds

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Number of funds

growth rate

12 months

-0.44%

December 2016

3 861


In a nutshellIn a nutshell

Luxembourg market

Sources: CSSF / Fundsquare

Funds Fund units Net Assets (EUR bn)

Total 3 861 14 211 3 701 .076

Part I (law 2010)1 869 9 805 3 116 .104

Part II (law 2010)353 937 160 .578

SIF (law 2007)1 639 3 469 424 .394

Period

since the previous month

YTD

over 12 months

Number of share classes

in December 2016

78 573

December 31, 2016

1.66%

5.56%

5.56%

Change in net assets

Market share

Figures as at September 30, 2016 Source: EFAMA

Luxembourg accounts for 37% of UCITS assets as at September 30, 2016

Germany 28.5 Luxembourg 36.6

France 17.8 Ireland 17.4

Netherlands 14.1 United Kingdom 12.6

Luxembourg 10.7 France 9.3

Others 29.0 Others 24.2

Total

AIFs EUR 5357 bn

Total

UCITS EUR 8345 bn

Top 4 countries

AIFs market (in %)

Luxembourg accounts for 37 % of UCITS assets

as at September 30, 2016

Top 4 countries

UCITS market (in %)

European UCIs = EUR 13702 bn

UCITS

61%

AIFs

39%

Asset AllocationAsset Allocation

Market share


UCITS61%

AIFs39%

EUROPE

UCITS84%

AIFs16%

LUXEMBOURG

Europe Luxembourg

11

European market

CountryTotal assets

under management

€ millions

Market share

in %Country

Total assets

under management

€ millions

Market share

in %

Luxembourg 3 621 929 26.4 Luxembourg 3 051 016 36.6

Ireland 1 944 220 14.2 Ireland 1 448 847 17.4

Germany 1 839 003 13.4 United Kingdom 1 049 932 12.6

France 1 729 240 12.6 France 774 880 9.3

United Kingdom 1 416 335 10.3 Switzerland 433 088 5.2

Netherlands 792 094 5.8 Germany 314 953 3.8

Switzerland 533 373 3.9 Sweden 264 969 3.2

Sweden 286 515 2.1 Italy 230 996 2.8

Italy 285 189 2.1 Spain 187 993 2.3

Denmark 269 139 2.0 Denmark 112 350 1.3

Others 984 634 7.2 Others 476 094 5.7

Total 13 701 671 100.0 Total 8 345 118 100.0

0

UCITS & AIFs UCITS


12

Net sales Q1-Q3/2016 – UCITS & AIFs

Net sales in Europe


TOTAL in EUR bn 337 100%

Luxembourg 94 28%

Other European MS 243 72%

28%

72%

Luxembourg

Other European MS

2.

Three pillars of the Luxembourg

Fund Industry

14

Cross-border fund distribution

Source : Lipper LIM & PwC analysis as at December 31, 2015 (Poster PwC March 2016)

4 5294 875

5 170

5 907

6 525

7 366 7 4417 907

8 511

9 4369 869

10 430

11 222

0

2 000

4 000

6 000

8 000

10 000

12 000

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

80 000

90 000

100 000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Luxembourg Ireland UK France Jersey Other Number of true

x-border funds

Number of cross-border registrationsNumber of cross-border funds


65

22

4

3

2

0 10 20 30 40 50 60 70

LU

IE

FR

JE

UK65 % of all UCITS

registered in at least 3 countries

(including home state) are Luxembourg funds

in %


Principal markets for distribution of Luxembourg investment funds (in terms of the number of registrations)



0

1 000

2 000

3 000

4 000

5 000

6 000

Germ

an

y

Sw

itzerl

an

d

Au

str

ia

Fra

nce

Un

ite

d K

ing

do

m

Neth

erl

an

ds

Sp

ain

Italy

Sw

ed

en

Fin

lan

d

No

rway

Belg

ium

Sin

gap

ore

Den

ma

rk

Irela

nd

Po

rtu

gal

Gre

ece

Ch

ile

Ho

ng

Ko

ng

Lie

ch

ten

ste

in

DE CH AT FR UK NL ES IT SE FI NO BE SG DK IE PT GR CL HK LI

Americas

Asia Pacific

Europe

Luxembourg market share of foreign cross-border funds registered for sale


Source: Global Fund distribution analysis – March 2016

Peru, 46%

Chile, 60%

Germany, 59%

France, 61%

Switzerland, 65%

Bahrain, 76%

Singapore, 69%

South Korea, 94%

Japan, 55%

Taiwan, 76%Hong Kong, 74%

Poland, 95%Denmark, 62%

Finland, 65%

Norway, 70%

Sweden, 64%

Number of AIFMs 840

• Authorized AIFMs 235

• Registered AIFMs 605

Number of Special Limited Partnerships 1297

AIFMs

As at November 2016

19

Net sales of AIFs

143,7

67,1

24,219,8

13,6

- 0,7- 2,4

22,0

-25

0

25

50

75

100

125

150

175

Europe Germany Netherlands Luxembourg Ireland Denmark UnitedKingdom

Others

EUR billions

Net sales of AIFs per fund domicile

in Q1-Q3/2016


Responsible Investing (RI) funds themes

Responsible investing funds

Cross-themes

funds

ESG

Thematic Funds

RI screened

(Best-in-class,

Engagement)

ESG

(environmental)ESG

(social)

ESG

(governance)

Climate change

and Renewable

energy Funds

Environmental

and Ecological

funds

Carbon funds

Sustainable

forestry funds

Sustainable

water funds

Impact funds

(across thematic funds and cross-themes funds ESG)

Microfinance

funds

Social

Entrepreneurship

& Solidarity funds

Venture

philanthropy

Engagement

The boundaries of « mission-related finance »

Grant Money

Dependent

Cost

Recovering

« coincidental

» Financial

Return

Financal

Return

Because of

Social USP

Pos.

Correlation

social/environ.

Impact and

fin. Return

Socially/Policy

Neutral

Business

Models

Neg. Corr.

Social/env.

Impact and

fin. return

Environmental- / Social Impact-driven Investors

Impact Investing

Charity/

Philanthropy

Financial-Return-Oriented Investors

Philanthropy

(Financial)

Investors

with Social

Objectives/

Strategic

Value

Investors

(Exclusively) financial-Return-

Oriented Investors

Source: Uli Grabenwarter 2008, 2010

© Uli Grabenwarter

2014

Impact Investing – what it is and what it is not

IMPACT

investing

Profit - Orientated

Intentional - Impact

Measureble - Impact

Positive Correlation

between Impact and

Financial Return

Net Positive Impact

© Uli Grabenwarter

2014

Impact Investing – what it is and what it is not

Yes

Possibly

No

No

Possibly

« Traditional » Investing

Profit - Orientated

Positive Correlation

between Impact and

Financial Return

Yes

Yes

Yes

Yes

Yes

Impact Investing

Intentional Impact

Measureable Impact

Net Positive Impact

© Uli Grabenwarter

2014

Impact investing is instrument-agnostic but…

• Most suited for impact investing because of extensive control and decisions rights for private equity investorsPrivate Equity

• Monst difficult approach to impact investing becauseof lack of influence of small scale investors (origin of Active Shareholders Movement)

Public Equity

• Impact investing strongly present in microcreditactivities

• Impact investing accessible for traditional debt but need for project-finance-type of covenants

Debt Instruments

© Uli Grabenwarter

2014

3.

Current priorities

ALFI 2020 ambition:

serving the interests of investors and the economy

ALFI’s key objectives:

Promote practices that align the interests of investors and

industry

Articulate the essential role of investment funds for the global

economy

Connect investors with worldwide market opportunities

Ensure Luxembourg remains the fund centre of choice for asset

managers

Stimulate innovation, research, education and talent development

The way forward

Legal toolbox BREXIT

Macro drivers affecting the

asset management

industry

X-border distribution

Ongoingregulatory

agenda

Diversification

- LPs

- RAIF

- Climate

Finance...

- MiFID II

- PRIIPs

- CMU

- BEPS

- Growing middle class

- Infrastructure needs

- Alternative and “passive

on the rise

- Pressure on margins

- Pension funds deficits

- Digitalization

Brasil

CVM has extended the limits for overseas investment:

a) Equity and fixed-income funds for retail investors: the limit has doubled to 20%;

b) Multimarket funds (hedge funds): the limit is kept the same at 20%;

c) Funds exclusively designed for qualified investors: the upper limit is set at

40% but can reach 100% if certain rules are observed.

d) Funds exclusively designed for professional investors: there is no limit.

Philippines

Set of rules drafted by the SEC to allow fund houses to offer feeder funds in order to

follow the Southeast Asian market trends (Thailand, i.e)

Should act as a catalyst for growth and allow fund houses to diversify their range of

foreign-invested funds

Central bank of Philippines also created a task force to allow the investment

possibilities by their UITFs in derivatives (only allow for hedging purposes at this point).

New frontiers

Australia

ALFI has negotiated an exemption from the obligation to hold an Australian financial

services (AFS) licence to provide financial services in Australia. The exemption applies

to Chapter 15 Management Companies and Self-Managed SICAVs regulated by the

CSSF.

This relief will enable Australia’s institutional investors, including superannuation funds

(pension funds), to get easier access to Luxembourg UCITS.

The Australian regulator (ASIC) can exempt a foreign financial services provider from

the requirement to hold a licence on the twofold condition that the financial services are

provided to wholesale (institutional) clients only and that these financial services are

regulated by an overseas regulatory authority.

The regulatory regime overseen by the relevant overseas regulatory authority needs to

be ‘sufficiently equivalent’ to the Australian regulatory regime and effective cooperation

arrangements must also exist before relief is granted.

ASIC and the CSSF have therefore signed an MoU on mutual cooperation and the

exchange of information related to the supervision of regulated entities in September

2013.

New frontiers

InFiNe

One among many stakeholders

ALFI Upcoming events

Proposed amendments to the Markets in Financial Instruments Directive (MiFID)

MiFID is a framework for investment services and financial activities in the EU. It includesprotection rules for the investors and operating rules for trading venues

Transposition in national legislation by July 2017, entry into force in January 2018

From a fund distribution perspective, two major impacts:

Retrocessions and trailers fees (“inducements”) to independent distributors no longerpermitted

Product manufacturers (management companies) must define the target markets andtypes of investors to whom funds will be distributed

Impact on open architecture?

New distribution channels ? Robo advice, passive funds and ETFs, direct distribution byasset managers

MiFID II

MiFID II

Ban on Inducements

“Any fee, commission paid or received by an investment firm or any monetary

or non-monetary benefit provided or being provided in connection with the

provision of an investment service or an ancillary service, to or by any party

except the client or a person acting on behalf of the client”.

1. Definition

When providing portfolio management or investment advice on an independent

basis, the investment firm shall not accept and retain any monetary or non-monetary

benefits except minor non-monetary benefits.

2. Independent Advice No Inducement Permitted

(…) “It enhances the quality of services for investors and they do not impair

compliance with the investment firm’s duty to act honestly, fairly and

professionally in accordance with the best interest of its clients”

3. Dependent Advisers Inducements Permitted under Condition

MiFID II

Target Market: 6 Criteria

Client

Type

Knowledge

Experience

Financial Situation

Risk Tolerance

Client’s Objective

s

Client’s Needs

Proposed Regulation of the European Parliament and Council on Key Information Documents forPackaged Retail Investment Products

In essence, PRIIPs is a laudable initiative. Aim is to extend the concept of the UCITS KIID toall ‘packaged retail products’, in order to create a level playing field in terms of productdisclosures and to facilitate comparability between competing products, allowing retailinvestors to make better informed investment decisions

The proposals focus on product disclosures and sales processes for all packaged retailinvestment products

The Commission considers that the 'Key Investor Information Document' (KIID), agreed forUCITS forms a good benchmark for other packaged retail investment products

PRIIPs scope includes the following products: investment funds (both UCITS and non-UCITSfunds sold to retail investors), certain insurance products (investment based insuranceproducts) and certain banking products (structured products in particular)

When?

AIFs/ non-UCITS, structured products, insurance products: January 2018

UCITS: KIID replaced by PRIIPs in January 2020

PRIIPs

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