Transcript AIFMD Countdown:

AIFMD : The Final
Countdown
Gus Black
Angelyn Lim
Marc Seimetz
Hong Kong
26 November 2012
© 2012 Dechert LLP
Timetable – Level 1
• The Directive became EU law on 21 July 2011.
• Must be implemented by 22 July 2013.
2
Timetable – Level 2: ESMA Advice
• ESMA issued technical advice to the Commission
on 16 November 2011.
3
Timetable – Level 2: Regulations
• Have ‘direct effect’
• Contain wide ranging implementing measures
4
Timetable – National Implementation
• Directive must be implemented by July 2013
• “Regional variations”...
5
Timetable – Marketing
Directive in force
(P)
2011
2012
2013
EU AIF obtain
passport
2014
2015
2016
2017
Non-EU AIF obtain
passport?
IF ESMA make positive
recommendation, and
requisite implementing
legislation is passed
6
2018
No more private
placements?
Key Impact Areas –
Questions to
Consider
7
Scope and Authorisation
• Do you manage AIFs?
• Can you rely on any exemptions?
- de minimis?
- delegate only?
- Authorisation timing
8
Risk and Liquidity Management
• Who will monitor?
– How will functional separation be ensured?
– Are systems compliant?
9
Valuation
• Internal or external?
– External: who will do it and at what cost?
– Internal:
Liability
“Functional separation”
10
Other Operational / Compliance
• New requirements:
– conflicts
– due diligence
– inducements
– execution, etc
11
Delegation
• What is current delegation structure?
• Is it compliant?
– e.g. “third country” issues
• Letter box entities
12
Marketing
• Will private placement still work for me after 2013?
• Value in the passport on day one?
• Re-domicile funds onshore?
13
Marketing
• Member States may allow Non-EU AIFM marketing
from 2013-2015 if:
– The non-EU AIFM complies with the AIFMD’s
annual report, disclosure and reporting
requirements and with requirements on control of
non-listed companies
– Its home state meets the cooperation requirements
• States may impose stricter rules...
14
Marketing summary
2010
2011
2012
Implementation date. Passports
made available to EU AIFMs for EU
Funds.
Non-EU Funds or EU
Funds with Non-EU
AIFMs
2013
2014
Extension of passports to non-EU
AIFMs and non-EU AIFs.
EU Funds with
EU AIFMs
2015
Dual marketing system –
EU passport or private
placement
Private placement only
Dual marketing system –
EU passport or private
placement
2016
2017
ESMA to review the passport
regime. Possible end of national
private placement regime.
15
2018
Passport only ?
Passport only ?
Depositary
• Who?
• New prime broker model?
• Impact on pricing?
• Re-domicile onshore funds offshore?
16
Remuneration - scope
•
A lot of staff are potentially affected:
– Portfolio management
– Senior management
– Control functions
– Others
17
Remuneration – possible impacts
•
18
Restrictions on bonuses:
–
Fixed vs variable restricted
–
Deferral over 3-5 yrs
–
Clawback and reduction
–
Must include fund shares?
Remuneration – possible impacts (2)
•
Other impacts:
– Comp set by remuneration committee?
– Disclosure to investors
19
Other Specific Issues
•
Highly leveraged funds
– guidance awaited, 3x NAV?
20
•
Asset stripping rules
•
Securitisation provisions
Transparency
• New disclosure requirements:
– Impact on fund documents and IR?
– Who will deliver compliance?
21
Impact on Asian
Managers
22
Impact on Asian Managers
• Marketing funds to EU investors
• Acting as Sub-Investment Manager to an EU
AIFM
• Acting as Investment Manager of an EU AIF
23
Private Placement Timeline
2010
2011
2012
Implementation date. Passports
made available to EU AIFMs for EU
Funds.
Non-EU Funds or EU
Funds with Non-EU
AIFMs
2013
2014
Extension of passports to non-EU
AIFMs and non-EU AIFs.
EU Funds with
EU AIFMs
2015
Dual marketing system –
EU passport or private
placement
Private placement only
Dual marketing system –
EU passport or private
placement
2016
2017
ESMA to review the passport
regime. Possible end of national
private placement regime.
24
2018
Passport only ?
Passport only ?
Private Placement by Asian Managers
July 2013 – 2015
• National private placement rules dependant on individual
EU Member States (Note: Germany).
• Possible if:
– Manager complies with transparency disclosure requirements
of AIFMD for each fund
– Manager complies with obligations when acquiring control of
EU-registered non-listed companies
– Co-operation agreements entered into between regulators of
Manager, Fund and EU Member State where marketing will
take place
– Neither country of domicile of Fund and Manager is listed as a
non-cooperative country by the FATF
25
Private Placement by Asian Managers (2)
2015 – 2018
• Possible if above requirements are satisfied.
• If EU authorities agree, Manager may be able to benefit
from EU passport:
– Become authorised as a non-EU AIFM by an EU Member
State of Reference
– Comply with all AIFMD obligations applicable to an EU AIFM
– Co-operation agreements among relevant regulators
– Agreement between Manager’s home country and EU
Member State of Reference for exchange of tax-related
information
– Manager’s home country is not listed as a non-cooperative
country by FATF
26
Private Placement by Asian Managers (3)
2018 Onwards
• EU authorities may abolish private placement rules
• Authorisation by an EU Member State of Reference
the only possibility?
27
Transparency Requirements
• Annual report
– Disclosure of remuneration paid by the Manager
• Split between fixed and variable pay
• Remuneration for senior management and other risk
takers
• Remuneration policies and practices for individuals and
those with material impact on the risk profile of the fund
• Disclosures to investors
– Financial data (i.e. NAV, past performance)
– Valuation procedures and pricing methodologies
– Risk profile of the Fund, risk system operated by the Manager,
liquidity risk management and any special arrangements
arising from illiquid nature (i.e. side pockets)
28
Transparency Requirements (2)
• Disclosure to investors (cont.)
– Preferential treatment (i.e. side letter)
– Leverage : total amount, changes to maximum level
• Reporting obligations to EU regulators
– Report to each Member State in which the Fund is marketed:
• Main instruments of trade
• Principal exposures
• Most important concentrations
– Monitoring of systemic risk: each Member State in which the
Fund is marketed may require more information on a periodic
and ad hoc basis
29
Transparency Requirements (3)
• Obligations when acquiring control of EU non-listed
companies
– Disclosure to the Member State regulator:
• On acquisition – notify the percentage of voting rights held by
the Fund
• Post-acquisition - notify the percentage voting rights held at
various thresholds: 10%, 20%, 30%, 50% and 75%
• (and to investors) Information on the Fund’s financing of the
transaction
– Fund must disclose to the target company and its
shareholders:
• its intention for the future business of the target company
• the likely effect the acquisition will have on employment
30
Delegation under the AIFMD
• Usually by an EU AIFM to an Asian Manager.
Possible if:– Delegation notified to the AIFM’s regulator
– Asian Manager is registered/licensed to carry on
asset management and is subject to supervision
31
Delegation under the AIFMD (2)
– Asian Manager has sufficient resources and individual
PMs are of good repute with sufficient experience
– Asian Manager is qualified, DD has been exercised in
its selection; AIFM is able to monitor and withdraw
delegation
– Supervision is retained by AIFM which remains
responsible to Fund (AIF) and the investors
– Co-operation agreement between relevant regulators
(same degree of data protection?)
• Letter-box issues: “the totality of individually delegated
tasks [cannot] substantially exceed the tasks remaining
with AIFM”
32
Implementing the
AIFMD in Luxembourg
33
Draft Bill of 24 August 2012
• The Draft Bill implementing the AIFMD and amending
certain Luxembourg laws (the “Bill”) has been filed on 24
August 2012 with the Luxembourg Parliament
• The Bill will:
– implement AIFMD
– change and update other provisions of Luxembourg law,
including
• Add a new category of Professional of the Financial Sector (PSF)
(i.e. depositary for AIF)
• Introduce a Special Limited Partnership (société en commandite
spéciale or S.L.S.) (similar to the English limited partnership)
• Update the current regimes for Limited Partnership (société en
commandite simple or S.C.S.) and Partnership limited by shares
(société en commandite par actions or S.C.A.)
34
Introduction of a New Law; Amendment
of Existing Laws
• The implementation of the AIFMD will among others be
done through
– a new Luxembourg law relating to the AIFM
– Amendment to the existing laws relating to the different
types of Luxembourg investment funds such as
 The law of 17 December 2010 on Undertakings for
Collective Investment (“UCIs”)
 The law of 13 February 2007 on Specialised
Investment Funds ( “SIFs” )
 The law of 15 June 2004 relating to Investment
Companies in Risk Capital (“SICARs”)
35
New Depositary Regime
•
The Bill will amend the law of 5 April 1993 on the
financial sector, as amended,
and
specifically introduce, in addition to banks, a new
category of Professional of the Financial Sector
entitled to act as depositary for alternative investment
funds
36
Changes to the Luxembourg Company Law
•
The Bill will amend the law of 10 August 1915 on commercial
companies, as amended
– Introduction of the Special Limited Partnership (SLP) regime
(société en commandite spéciale)
 SIFs, SICARs and unregulated commercial enterprises will
have the possibility to be incorporated under the form of a SLP
which would be established through a limited partnership
agreement (similar to an English limited partnership)
 a SLP would not have a legal personality and should be
treated as “transparent” for tax purposes
– Amendment/Modernizing of the existing Limited Partnership
regimes (société en commandite simple/société en commandite
par actions) by introducing further clarity, among others, on
liabilities of the partners, improving thus the attractivity of these
structures
37
Entry into Force and Transitory Provisions
as provided currently in the Bill
•
The Bill is currently in the middle of the Luxembourg
legislative approval process and it is expected that the Bill
will be adopted at the end of 2012/beginning of 2013 (well
before the deadline imposed by AIFMD which is 22 July
2013)
•
Should the Bill be adopted with its current wording, then
– SIFs, SICARs and UCIs established before 22 July 2013
will benefit from a grandfathering period to comply with
the provisions of the new legislation until 22 July 2014
– SIFs, SICARs and UCIs established after 22 July 2013
will automatically be subject to the provisions of the new
legislation
38
QUESTIONS?
39
Key Dechert Contacts
Gus Black
Partner
[email protected]
40
Angelyn Lim
Partner
[email protected]
Marc Seimetz
Partner
[email protected]
Dechert LLP
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