AIFMD Update Client Seminar

14 March 2013

3.00pm Welcome

3.05pm Status Update

3.35pm Scope

4.05pm Break 20 minutes

4.25pm Organisational Considerations &

Operating Conditions

Programme

5.00pm Remuneration

5.15pm AIFMD Authorisation – getting ready

5.30pm Wrap-up & Q&A

6.00 pm Drinks

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Status Update

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Status Update

Key objective: Europe becomes a regulated funds ‘only’ market

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AIFM (in scope)

AIFMD+ authorisation (retail clients)

AIFMD authorisation (professional clients)

Maximum harmonisation

No passport!

Passport

EU parties from 2013

(save in relation to non EU funds)

Non EU parties may become

authorised in 2015* and must

ultimately be authorised in 2018*

* conditionally

Timeline

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3 years from Q3/Q4 2015

July

2011 December

2012

July

2013

July

2014

July

2015

Q3 /Q4

2015?

Q4

2018?

Transitional

period for

existing EU

AIFM

AIFM

Directive

becomes law

Level 2

measures

published

Deadline for

existing EU

AIFM to

submit

authorisation

applications

Deadline

for ESMA

opinion on

application

of passport

to non-EU

AIFs/AIFMs

Authorisation

/passporting

for non-EU

AIF/AIFM?

National

private

placement

regimes

terminated?

AIFM

Directive

effective (22

July) EU

NL Second Chamber adopts

implementation legislation

(Oct 2012), awaiting Novelle

on pension poolings structures

for adoption First Chamber

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Dutch developments to come:

• First Chamber adopting legislation

implementing AIFMD

• Draft implementation in secondary legislation

• Consultation draft Application Form

• Reporting Formats from DNB

• FAQ from AFM

Status Update

European Developments:

Venture Capital Regulation passed by EP 12

March 2013

To come:

• Publication final Level 2 following expiry of

period (19 March 2013) for EP scrutiny

• Final report on Guidelines on Key Concepts

• Potentially additional convergence tools from

ESMA (e.g. Q&A)

Scope

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Are you in scope - Recap

• Are you an AIFM?

• Legal person

• Regular business managing one or more AIFs

• AIF

• Collective investment

• Raise capital

• From a number of investors

• With a view to investing in accordance with defined investment policy

• Non-UCITs

• New: Consultation Paper on Key Concepts

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Are you in scope – Clarifications

• Raising Capital: Direct or indirect steps to procure transfer of commitment by one or more investors

• Disregarding:

• Members of governing bodies of undertaking or of legal person managing that undertaking

• Employees whose professional activities have a material impact on risk profile

• Member of a group of persons connected by close familial relationship that pre-dates the

establishment of the undertaking

• Number of investors:

• Unless binding legal provision prevents more than one investor - one investor is enough

• one fund investor is enough

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Are you in scope – Example - AIFs

Manager GP

Adviser/

Arranger

Carry LP

Co-invest

LP

AIF?

Likely AIFs

Fund A LP Fund B LP

Holding

investors

Feeder

AIF?

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Are you in scope – AuM - Example

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Fund A LP

AuM: €200M

Fund B LP

AuM: €200M

AIFM AIFM

AIFM

Fund B LP

AuM: €150

Mr X.

15%

• AuM test: 100 or 500M,

depending on leverage

and 5 year lock up

• Identify AIFS managed • Directly

• Indirectly through

“common

management or

control”

• By a substantive

direct or indirect

holding (NL: 10% or

more)

• Include leverage,

controlled structures,

derivatives

AUM:

• 550?

• 200/200/150?

• 200/350?

15% 55%

Organisational Considerations

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Organisational Considerations

• Designation AIFM taking into account permitted activities (Annex I functions and certain MiFID activities (to

the extent permitted in the Member State)) and delegation

• AIFMD authorisation in NL permits management of client-by-client mandates (subject to compliance in the

area of initial capital, organisational requirements and conduct of business rules)

• Statutory outsourcing of: cash monitoring, safe-keeping of assets and oversight (depositary function)

• Hierarchical and/or functional separation: risk, compliance, valuation (most of the time tailored around

proportionality)

• Where appropriate and proportionate in view of the nature, scale and complexity of the business:

permanent internal audit function and remuneration committee

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Organisation considerations

Core Services

Portfolio and risk management

Non-core or ancillary services

Administration

Services in relation to assets

Marketing (fundraising)

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Activities you are not permitted to perform

(out of the AIFMD compliant manager)

Any services other than core and non core services

and UCITS management; and

ONLY to the extent authorised by Member States:

• individual portfolio management (MiFID)

• safekeeping and administration

• investment advice (MiFID)

• brokerage (MiFID)

Functions of the AIFM manager.

Delegations relates to own functions! Anti-concentration elements

Organisational Considerations

Typical domestic structure

(manager on same shore as fund)

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Typical off shore structure

(investment advisor outside fund jurisdiction)

fund

LPs

ManCo

GP

ManCo = AIFM (provided

appointed by, or on behalf

of, the fund, art. 5 AIFMD)

fund LPs

ManCo/

GP

EU or

non-EU

advisor

(non-discretionary) advice to

ManCo or Fund disqualifies

as a core /ancillary service

ManCo/GP = AIFM provided

appointed by, or on behalf of,

the fund, art 5 AIFMD)

Organisational considerations

What your management organisation could look like:

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Non-executive Function Remuneration

Executive Board Committee

Portfolio Management Risk Management

Compliance Officer

Internal Audit Function

Valuation

Depositary

Depositary - Cash Monitoring

Any cash must be booked in accounts with a bank (central bank, EU credit institution, or a bank outside the

EU subject to prudential supervision). Direct access must be ascertained to information on cash accounts

(directly from the banks concerned)

Cash monitoring entails:

• ensure that all cash is booked in cash accounts held with banks

• daily reconciliation of cash flow movements (or at least each time when a cash movement occurs)

• appropriate procedures to monitor daily significant /inconsistent cash flows

• periodical review of procedures, incl. full annual review of reconciliation process

• on-going monitoring of outcome of reconciliation processes and actions taken as a result of discrepancies

or irregularities (notification of fund manager or supervisory authorities)

• check on consistency of own record of cash positions with records maintained by the fund manager

• receipt of information on subscriptions and ensure that subscription monies are booked on cash accounts

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Depositary - Custody

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In case of non-custody assets amongst

others by:

• direct access to sufficient & reliable information

including info from TP

• record keeping such that at any given time

comprehensive and up-to-date information on

assets (no ‘transfer’ without

information/documentation provided to

depositary)

• escalation procedure for detection of

anomalies/ discrepancies

• look through approach in case of legal/financial

structures controlled by the fund or its

manager, save in case of master-feeder

structures where another depositary is

involved

Custody assets:

• registration in depositary’s books within

segregated financial instruments accounts

• accurate record keeping and maintenance of

segregated accounts (in particular, record of

correspondence with financial instruments and

cash)

• regular reconciliations

• assessment of custody risks throughout

custody chain (notification of material risks to

fund manager)

• procedures to minimise loss or diminution (e.g.

fraud, poor registration)

• look through approach in case of delegation

Depositary - Oversight

Oversight function entails amongst others:

• sale, re-purchase, redemption, cancellation of shares/units in accordance with applicable law and fund

regulations

• valuation shares/units in accordance with applicable law and fund regulations (where external valuations

are made, the depositary shall verify if the external auditor’s appointment)

• carry-out instruction of the fund manager unless they are in conflict with applicable law and fund

regulations (investment restrictions, leverage limits)

• transactions involving fund assets and any consideration is remitted within usual time limits

• fund income is applied in accordance with applicable law and fund regulations

• risk assessment upon depositary’s appointment and regular update

• ex-post controls and verifications of transactions

• implementation of escalation procedures for irregularities

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Operating Requirements

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Operating Requirements - what may already be in place?

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AIFMD - Policies UCITS MiFID CRD III

Risk management policy x x

Best execution rules x

Recording of portfolio transactions x

Written policies for due diligence x

Strategy for exercise of voting rights x

Recording of subscription and redemption orders x

Remunaration policy x

Personal transaction policy x

Conflict of interest policy x

Valuation procedure x

Compliance and internal audit x x

Subscriptions & rectifications notified to investors in a durable medium x

Initial capital and own funds requirements

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Own funds ≥ Amount (€)

(a) Higher of:

(i) €125k + 0.02% AuM > €250m; and 275,000

(ii) ¼ of previous year fixed overhead;

plus 1,250,000

(b) Choice of:

(i) 0.01% of AuM (or 0.008%); or 100,00

(ii) PII excess + exclusions cover 200,00

Total own funds requirement 1,355,000

• Applies to the AIFM

• “Capital”: share capital, retained profit

• Initial capital requirement ≥ €125k (at authorisation)

• Own funds requirement (example: €1bn AUM)

Reporting Requirements

Applies to:

Reporting frequency:

Information to be provided for:

AIFMs managing AIFs with AuM above

the thresholds but < EUR 1 billion

Semi-annually

AIFMs managing AIFs with AuM above the thresholds but

< EUR 1 billion

AIFMs managing AIFs with AuM above

the thresholds but < EUR 1 billion

Quarterly

Each AIF whose AuM, >EUR 500 million

AIFMs managing AIFs with AuM > EUR

1 billion

Quarterly

Each EU AIF managed and each AIF marketed in the EU

AIFMs managing unleveraged AIFs that

invest in non-listed companies in order

to acquire control

Annually

Each unleveraged AIF which invests in non-listed

companies in order to acquire control

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Remuneration

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Remuneration Guidelines - Recap

• AIFM must have remuneration policy that applies to “Identified Staff”

- Board + supervisory board

- Senior management

- Control functions

- Risk takers (groups of people that materially impact risk)

- Employees in same remuneration bracket (if impact on risk)

• Remuneration Guidelines should promote sound and effective risk management, including by:

- Proportionality of variable to fixed remuneration

- Requirement that at least 50% of variable is paid “in kind”

- Deferral of at least 40% of variable remuneration (i.e. subject to vesting)

- Applies to all variable remuneration and carried interest

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Remuneration Guidelines – Clarifications

• Delegation - AIFM should ensure that Remuneration Guidelines apply to delegatees that perform risk

management or portfolio management

• Control functions (risk management & compliance, audit and similar (incl. CFO)) can receive variable

remuneration (carried interest) but:

• Not solely based on AIFM wide performance criteria

• Avoid compromising independence and conflicts

• Dividends to owners of AIFMD are not remuneration

• Carried interest/Co-invest: position unchanged:

• Carry: contributions back + clawback

• Co-invest: actual disbursement

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Remuneration Guidelines – Clarifications – Remuneration Committee

• Remuneration Committee is not necessary if:

• AuM €1,25bn or less and 50 employees or less in total; or

• AIFM is part of a banking-, insurance group, an investment group or a financial conglomerate that is

obliged to set up a remuneration committee subject to equivalent rules

• If you need one:

• Majority must be independent, incl. Chair

• Sufficient expertise

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AIFMD authorisation

Getting ready

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Licensing application – Documentation to be submitted

• Clear description of organisational structure (AO/IC), including a reference table for each statutory

conditions and the corresponding page number of the AO/IC where this condition is addressed

• An organisational chart of the manager (and its group) and the depositary (and its group)

• Investment strategy including the underlying funds

• Policy on personal transactions

• (Sub)delegation structures

• Valuation policy

• Conflict of interest policy

• Remuneration policy

• Auditor’s statement (certification of capital/own funds of the manager)

• Annexes in relation to the screening of officers and policy makers (geschiktheidmatrix,

betrouwbaarheidsformulieren, referentenformulieren)

The application form should be accompanied by a notification for for each fund managed (meldingsformulier

per beleggingsinstelling); templates of these shall become available on 22 May 2013 through Digitaal Loket

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Licensing application - AO/IC

AO/IC should cover (inter alia) the following policy issues:

• General provisions – calculations of AuM and Leverage;

• Organisational requirements (decision making procedures, business continuity, internal reporting,

accounting procedures, etc.);

• Best execution policy;

• Due Diligence policy;

• Liquidity management policy;

• Risk management policy;

• Additional own funds and professional liability insurance.

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License application

From 22 July 2013 – 21 July 2014, unless in case of a new activity in a Member State

AFM accepts applications from 22 May 2013 onwards through Digitaal Loket,

http://www.afm.nl/nl/professionals/afm-voor/aifm/aifm/vergunning-registratie/vergunning.aspx

Handling time AFM: 13 weeks (this term may be extended in case of additional requests for information)

Costs (currently): EUR 5,500 per application, EUR 1,000 per integrity screening of a beleidsbepaler (EUR 200

for screened individuals), EUR 1,500 per expertise screening of a dagelijks beleidsbepaler (EUR 200 for

screened individuals)

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Q & A

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AIFM Directive - update

Thank you!

Disclaimer

Although this presentation has been compiled with great care, Loyens & Loeff N.V. and all other entities, partnerships, persons

and practices trading under the name 'Loyens & Loeff', cannot accept any liability for the consequences of making use of this

issue without their cooperation. The information provided is intended as general information and cannot be regarded as advice.

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