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Alternative Investments Conference
www.pwc.lu
29 January 2014
PwC
Welcome Régis Malcourant PwC Luxembourg
PwC
Agenda
9:00 – 9:50 AIFMD – Lessons learned and strategic positioning post July 2014 9:50 – 10:30 Operating alternative funds in the current tax climate 10:30 – 10:45 Coffee break 10:45 – 11:30 AIFMD: New opportunities for the distribution of AIFs 11:30 – 12:15 EMIR and AIFMD: operational challenges for AIFs As from 12:15 Buffet lunch
PwC
Luxembourg as Alternative Investment Funds Domicile Myths or Realities? Régis Malcourant PwC Luxembourg
PwC
Myths or Realities
How important is the “institutionalization” of HF investors?
Which is the fastest growing Alternative Investment Funds domicile?
Which is the most successful Sophisticated Investment Vehicle in Europe?
Which is the largest Alternative UCITS domicile?
Luxembourg in the eyes of main HF service providers?
Luxembourg in the eyes of major HF managers?
PwC
Global Hedge Funds by Source of Capital
44% 40%
30% 22% 23% 20%
24%
23%
32%
29% 27 % 25%
15%
11% 15%
14% 16% 22%
9%
18% 11%
26% 25% 25%
8% 8% 12% 9% 9% 8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2004 2006 2008 2010 2011 2012
Individuals Fund of funds Pension funds Corporations & other Endowments & foundations
Institutional Investors
Institutional money represents now more than 55% of the Global source of capital (FoF excluded!)
PwC
40.1%
27 .7%
6.9%
3.3%
1 .3%
20.8%
29.8%
23.0%
4.4%
9.7% 11.4%
21.7%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Caymans Delaware BVI Ireland Luxembourg Others
2008 2009 2010 2011 2012
% of hedge funds assets by main country of domicile
Luxembourg posted the largest growth in term of relative weight of domiciled funds, from 1.3% in 2008 to 11.4% in 2012.
Global Alternative Investment Fund Domiciliation
Source: HFR
PwC
Sophisticated Investment Funds in Europe
1 ,317
1 ,815
2,119
2,507
2,7 96
3,023
3,153
1 ,028 1 ,115 1 ,174 1 ,217
1 ,420
1 ,664 1 ,776
-
500
1,000
1,500
2,000
2,500
3,000
3,500
2007 2008 2009 2010 2011 2012 Aug-13
# of SIFs # of QIFs
117 131
154
214
239
277 288
109 94
113
153
182
204
225
0
50
100
150
200
250
300
350
2007 2008 2009 2010 2011 2012 Aug-13
SIF QIF
Number of sub-funds AuM in EUR bn
*SIFs estimated in August 2013 according to the av erage number of sub-funds by fund in 2012
Luxembourg SIF is the preferred sophisticated investment vehicle in Europe and the largest AUM collector
PwC
Alternative UCITS by domicile
Luxembourg, 49.4%
France, 14.4%
Ireland, 13.2%
Spain, 5.2%
Germany, 4.5%
UK, 4.4%
Others, 9.0%
In number of sub-funds
1 Alternative UCITS out of 2 is currently domiciled in Luxembourg
PwC
The top 10 HF / FoHF Administrators
# HF / FoHF Administrators ranked by $AUA Present in Luxembourg?
1 State Street Yes
2 Citco Fund Services Yes
3 BNY Mellon Yes
4 Citi Group Yes
5 J.P. Morgan Global Fund Services Yes
6 SS&C GlobeOp Yes
7 SEI -
9 Northern Trust Yes
9 RBC Inv estor Services Yes
1 0 Morgan Stanley Fund Services, Inc -
8 out of the top 10 HF / FoHF Administrators are currently active in Luxembourg
PwC
The top 10 HF Managers
7 out of the top 10 HF Managers are currently active in Luxembourg
# Hedge funds managers Location Assets (USD
bn) June 12
1 Bridgewater Associates Westport (US) 80.9
2 BlackRock NY /London 50.2
3 JP Morgan AM/Highbridge New Y ork 44.4
4 Man Investments London 41.4
5 Brevan Howard London 36.7
6 BlueCrest Capital Management London 31.1
7 Och-Ziff CM New Y ork 31.0
8 Winton Capital Management London 28.5
9 Standard Life Investments London 27 .3
10 Angelo Gordon New Y ork 24.0
HF, FoHF, Alternative UCITS domiciled in Luxembourg ?
NO
YES
YES
YES
YES
YES
YES
NO
YES
NO
Source: The Hedge fund journal, Monterey
© 2014 PricewaterhouseCoopers, Société coopérative. All rights reserved. In this document,
“PwC” refers to PricewaterhouseCoopers, Société coopérative, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal
entity.
Régis Malcourant
Hedge Funds Leader, PwC Luxembourg
Contacts
PwC
AIFMD – Lessons learned and strategic positioning post July 2014 Olivier Carré PwC Luxembourg
PwC
AIFM licences – Key challenges & lessons learned
• Remuneration
guidelines
• Conflicts of interest Conduct of
Business
Depositary Function
Management / Marketing Passport
Specific Provisions
Transparency
Authorisation
Functions and services
• Valuation
• Risk & liquidity
management
• Delegation
• Substance
• Reporting to regulator
• Disclosure to investors
• Authorisation
deadlines
• Capital
requirements
• Leverage
• Monitoring of cash flows
• Safekeeping duties
• Oversight duties
• Liability regime
1
2
3
4
5
6
AIFM - Opportunity
AIFM - Conformity
Key Aspects
Depositary - Conformity
PwC
AIFMD licences – Where do we stand in Luxembourg?
12 AIFMs have officially been authorised (8 Chapter 15 UCITS ManCos)
1
Approximately 90 AIFM applications pending with CSSF 2
First AIFs prospectuses have been approved by CSSF 3
PwC
AIFMD licences – How do we compare to other domiciles?
I
31 32
4 8 12
350
100 100
150 150
0
50
100
150
200
250
300
350
400
UK France Germany Ireland Luxembourg
Licences Full scope AIFM (estimate)
In average 8% of the expected AIFMs are
authorized
AIFM applications and authorizations per domicile
PwC
Panel discussion
What is your chosen AIFM strategic positioning after the AIFMD transition period end
in July 2014?
PwC
Panel discussion
What are the major threats and opportunities arising out
of AIFMD?
PwC
Panel discussion
How do you perceive the readiness of your peer asset
managers?
PwC
Panel discussion
How do you perceive the awareness of the distribution
channels and institutional investors?
PwC
Non-EU AIFM marketing Non-EU AIF in EU – Private Placement (2013 through 2018)
US not on FATF blacklist
Cooperation agreement between US and each EU country where AIF is marketed
US AIFM must comply with transparency (and controlling interest provisions of AIFMD, if applicable)
EU Investors
Caymans not on FATF blacklist
Private Placement Rules
• Marketing to professional investors
• Retail investors continue to be subject to domestic (private placement) rules
Non-EU AIFM Non-EU AIF
PwC
Non- EU AIFM marketing Non-EU AIF in EU – EU Passport as from 2015
US not on FATF blacklist
US AIFM must generally fully comply with AIFMD
Non-EU AIFM Non-EU AIF
EU Investors
EU Passport
Cooperation agreement between US and Caymans and MSR
Tax agreement between US and Caymans and MSR
Jersey not on FATF blacklist Tax Agreements between Caymans
and each EU member state where AIF is marketed
Member State of Reference (MSR)
Legal Representative
• Marketing to professional investors (MiFID) via EU Passport
• Marketing to retail investors continues to be subject to domestic (private placement) rules
PwC
Private Placement Map
Private Placement allowed
Private Placement conditioned
Private Placement abandoned
PwC
Panel discussion
Do you consider the AIFM passport as a “must-have”? Is
private placement still an option?
PwC
Panel discussion
What needs to be modified or enhanced under AIFMD 2?
© 2014 PricewaterhouseCoopers, Société coopérative. All rights reserved. In this document,
“PwC” refers to PricewaterhouseCoopers, Société coopérative, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal
entity.
Rudolf Kömen
Conducting Officer, Credit Suisse Fund Management S.A.
Andreas Rizos
CFO, Golding Capital Partners
Olivier Carré
Partner, PwC Luxembourg
Contacts
PwC
Operating alternative funds in the current tax climate Wim Piot PwC Luxembourg
© 2014 PricewaterhouseCoopers, Société coopérative. All rights reserved. In this document,
“PwC” refers to PricewaterhouseCoopers, Société coopérative, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal
entity.
Wim Piot
Partner, PwC Luxembourg
Begga Sigurdardottir
Partner, PwC Luxembourg
Will Taggart
Tax Asset Management Leader, PwC US
Oscar Teunissen
Partner, Global and US Tax Financial Services and Sovereign
Wealth Fund Leader, PwC US
Contacts
PwC
AIFMD: New opportunities for the distribution of AIFs Christophe Saint-Mard PwC Luxembourg
PwC
The marketing passport
The Marketing passport
In scope of the AIFMD marketing provisions
• 4 conditions: - Marketing of AIF (“a direct or indirect offering or placement);
- At the initiative of the managing AIFM;
- To professional investors domiciled or with a registered office in the EU;
• A notification process is required from Home to Host regulator to start marketing.
Passive marketing or “reverse solicitation” outside the scope of AIFM Directive
PwC
AIFMD benefits
• Establishment of common requirements to achieve a passport to distribute on a cross
border basis to professional investors
- Consistent approach to market to professional investors in the EU
• Set up of minimum conditions for marketing in the EU without passport (Article 42 of the AIFMD directive)
- Each M.S. can have stricter rules and may forbid marketing without
passport to professional investors.
• To open the EU market to non EU AIFM/AIFs
- What are the options to market in EU to professional investors?
PwC
Overview of the market access options
2013 2014 2017 2018 2019 2015 2016
EU AIFM/EU AIF EU PASSPORT
EUAIFM/
Non EU AIF
Non EU AIFM/
EU AIF
Non EU AIFM/
Non EU AIF
Private Placement
EU Passport
Private Placement
EU Passport
22 July 2013
Deadline for the implementation of AIFMD in the Member States
22 July 2014
Grandfathering provisions. Delay to apply for AIFM licence
ESMA Decision on
Private Placement Regime
ESMA Decision on
availability of EU Passport for non EU AIFM and non EU AIF
Private Placement
EU Passport
?
?
?
PwC
Market access options: Private placement
• Before AIFMD: National rules govern the ability to market non harmonised funds to professional investors;
• AIFMD: Articles 36, 42 and 43 set up minimum conditions for marketing in the EU without passport but M.S can have stricter rules and may forbid marketing without passport to professional (and may not allow marketing to retail investors).
=>With AIFMD implementation, some M.S are reviewing/changing their PPRs
PwC
Market access options: Private placement
• Cooperation arrangements are in place between AIF’s country, AIFM’s MS and
target MS
• The AIFM complies with the AIFMD’s transparency requirement (AR, reporting to
investors/regulators)
• The AIF is not established in a country listed as a NCCT by FATF
• The targeted member states must allow private placement
• The AIFM complies with the specific Host MS additional country requirements for marketing to professional investors under PP
Private Placement permitted to non-EU structures if:
PwC
PwC
PwC
Market access options: Private placement
• There are important benefits for the investment fund industry to allow transactions under private placement
• But no regime at EU level and national regimes are more closing than opening to private placement
• Closing private placement between professionals for UCITS funds could be detrimental as institutional investors have the majority in UCITS funds
• Is the future an EU private placement regime or simply passport or nothing (ESMA decision)?
© 2014 PricewaterhouseCoopers, Société coopérative. All rights reserved. In this document,
“PwC” refers to PricewaterhouseCoopers, Société coopérative, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal
entity.
Marnix Aricks
Managing Director, BNP Paribas Investments Partners Belgium
Luc de Vet
Managing Director, Citco Fund Services (Luxembourg) S.A.
William Jones
Managing Partner, Management Plus (Luxembourg) S.A.
Christophe Saint-Mard
Partner, PwC Luxembourg
Contacts
PwC
EMIR and AIFMD: operational challenges for AIFs
Lionel Nicolas PwC Luxembourg
PwC
AIFMD – Key dates AIFMD Areas
•Entry into force
•Level 2 measures by the EU commission
•Deadline for the authorisation of AIFM
21 July 2011
December 2012 AIFM set-up
Steps
21 July 2014
Closing following the
authorisation !
!
Reporting
•Reporting to the Regulator
•Reporting in the financial statements
31 October 2014 (latest) !
PwC
EMIR – Key dates
EMIR Areas
•Timely confirmation
•Mark-to-market/Marking-to-model
•Dispute resolution
•Portfolio Compression
•Portfolio Reconciliation
•Collateral exchange (including margin requirements)
•Clearing via CCPs
15 March 2013
15 September 2013
15 May 2014 (min.)
16 March 2015 (max.)
Central
Clearing
Provisions
Reporting
To be defined
12 February 2014
?
!
?
Risk
Mitigation Techniques
(RMT) Clearing
(OTC)
PwC
The operational challenges
Trade repositories
Valuation
ISDA agreements
Safekeeping
Regulatory technical standards
Eligible counterparties
RMT
ESMA
CCP
Data availability
SLAs & contracts
Central clearing
Delegation
Eligible collateral
EMIR AIFMD
Reporting
Oversight
Risk Management
Due diligence
PwC
The new operating model
Investor
AIFM Depositary
AIF
CPs Admin.
CSSF
Sub Custodian
Trade Repository
External Valuer
CCP Clearing Member
! Heavily
im pacted
! ! !
New
actors
! Prime Broker
© 2014 PricewaterhouseCoopers, Société coopérative. All rights reserved. In this document,
“PwC” refers to PricewaterhouseCoopers, Société coopérative, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal
entity.
Benjamin Gauthier
Director, PwC Luxembourg
Franck Wassmer
Deputy General Manager, BNY Mellon
Lionel Nicolas
Partner, PwC Luxembourg
Contacts