Transcript Trustee Disclosure Education

Government, Political and
Regulatory Drivers and
Challenges affecting the
Asset Management Industry
and their Funds
Michelle Moran
April 18, 2013
© 2013 Dechert LLP
Contents
Government,
Political and
Regulatory
Drivers and
Challenges
affecting the
Asset
Management
Industry and
their Funds
•
What does the fund industry look like in Europe
today?
•
What is wrong?
•
The main offences
•
Punishment and rehabilitation?
April 18, 2013
2
What does the fund industry look like in
Europe today?
Government,
Political and
Regulatory
Drivers and
Challenges
affecting the
Asset
Management
Industry and
their Funds
April 18, 2013
3
What does the fund industry look like in
Europe today?
Government,
Political and
Regulatory
Drivers and
Challenges
affecting the
Asset
Management
Industry and
their Funds
April 18, 2013
• UCITS continued to attract strong net inflows in February of
EUR 44 billion, marking a slight reduction from the EUR 49
billion recorded in January. All fund categories registered net
inflows in February.
• Long-term UCITS (UCITS excluding money market funds)
registered large net inflows amounting to EUR 41 billion, a
modest decrease from January’s record net inflows of EUR
53 billion. Net sales of equity funds registered EUR 14
billion, compared to EUR 21 billion in January. Bond funds
also recorded reduced net sales of EUR 13 billion, down
from EUR 20 billion in January. Balanced fund net sales
remained flat in February at EUR 11 billion.
• Money market funds experienced a turnaround in net sales
in February to register net inflows of EUR 4 billion, compared
to net outflows of EUR 5 billion recorded in January.
4
What does the fund industry look like in
Europe today
Government,
Political and
Regulatory
Drivers and
Challenges
affecting the
Asset
Management
Industry and
their Funds
•
Total non-UCITS recorded net sales of EUR 12 billion, down
from EUR 17 billion in January. Special funds (funds reserved
to institutional investors) recorded reduced net inflows
amounting to EUR 9 billion, compared to EUR 15 billion in the
previous month.
April 18, 2013
•
Total assets of UCITS stood at EUR 6,547 billion at end
February 2013, representing a 2.4% increase since end
January 2013. Total assets of non-UCITS enjoyed an increase
of 1.5 percent in January to stand at EUR 2,595 billion at month
end. Overall, total net assets of the European investment fund
industry stood at EUR 9,142 billion at end February 2013.
•
This has pushed net assets of European investment funds
above EUR 9 trillion mark for the first time.
5
What is wrong?
Government,
Political and
Regulatory
Drivers and
Challenges
affecting the
Asset
Management
Industry and
their Funds
• Investors around the world lost a lot of money which might
have been understandable if this was due only to markets.
But controls had been found wanting.
• When examined, products were being run in ways contrary
to investor expectations.
April 18, 2013
• When the bonnet of the car was lifted to determine cause …
so much was wrong that the car itself needed to be taken
apart.
• Governments around the world have been mandated to do
just that by investors.
• Investor confidence needed to be restored and fast – given
the deficit in long term savings and pension provisions.
6
The main offences
Government,
Political and
Regulatory
Drivers and
Challenges
affecting the
Asset
Management
Industry and
their Funds
•
Lack of protection of client assets - Madoff/Lehman.
•
Lack of transparency in investor materials - investors do not
understand what they are buying.
•
Excessive costs - funds cost too much.
•
Lack of adequate supervision of funds, managers, depositaries and
other service providers.
•
Current remuneration structures encouraged too much short term
risk taking when long term return was the predominant aim.
•
Too much uncertainty on the application of rules and regulations to
fund products due to divergent approaches by member states.
•
Funds and related service providers grow internationally but die
nationally.
April 18, 2013
7
Punishment and rehabilitation?
Government,
Political and
Regulatory
Drivers and
Challenges
affecting the
Asset
Management
Industry and
their Funds
April 18, 2013
• Lack of client asset protection
– Depositary liability – AIFMD and UCITS V
– Client Asset Protection Rules
• Lack of transparency
– Key Investor Information Document
•
Quiet revolution
•
Spread to non-UCITS products (e.g. The Netherlands)
•
Model for PRIPs
• Excessive costs
– Management company passport - push to minimise duplication of
management companies across Europe
– Cross border merger under UCITS IV and Master Feeder
structures – encourage reduction in number of small funds with
higher TER
8
Punishment and rehabilitation?
Government,
Political and
Regulatory
Drivers and
Challenges
affecting the
Asset
Management
Industry and
their Funds
April 18, 2013
• Lack of adequate supervision
– Additional management supervisory requirements introduced under
AIFMD and UCITS IV and V for managers and depositaries
– Detailed rules on delegation in AIFMD and UCITS V
• Aligning remuneration with long term returns
– Remuneration guidelines in AIFMD and now current UCITS V
proposals
– Bonus caps under AIFMD and UCITS V?
• Uncertainty on rule application
– Increased ESMA powers of enforcement under UCITS V
• International growth, national death
– Greater uniformity on rules relating to marketing across Europe and
relationships with supervision of management e.g. AIFMD
– Restrictions on private placement
9
Dublin
Attorney Profile – Dublin
Government,
Political and
Regulatory
Drivers and
Challenges
affecting the
Asset
Management
Industry and
their Funds
April 18, 2013
10
Michelle Moran
Partner
Financial Services
Dublin
+353 1 436 8511
+44 20 7184 7453
[email protected]
Dechert LLP
Government,
Political and
Regulatory
Drivers and
Challenges
affecting the
Asset
Management
Industry and
their Funds
Definitive advice
Practical guidance
Powerful advocacy
April 18, 2013
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12
Product Drivers
Changes in the environment and product design
Jeremy Soutter
April 2013
Changes in client Demands & needs
The economic background within which we operate has changed significantly and Volatility
will persist due to continuing turbulence in the global economy
Investors can no longer rely on long term equity growth to meet their needs (do they know
that?)
Beta is becoming a commodity, investors will pay only for sustainable alpha
The value chain will fit into three categories:
End investor selecting own products whether through platform or FA (probably
only 15% of market)
Financial Planning and total solutions from intermediaries for end investor
Manufactured products - European small cap as component part
- GARS as total solution
- Institutional propositions
14
Getting Product right
“The first rule of investment is don‘t lose.
And the second rule of investment is don‘t forget the first
rule.
And that‘s all the rules there are.’’
Warren Buffet
15
Building Products to meet demand
New Product Themes
Absolute Return
The opportunity for liquid alternative funds is huge and is
perhaps now becoming the most popular asset class
Most of these will be in the fixed income space as the tool
box is bigger, bets are often Macro and not at company
level
Diversified Strategy/Multi Asset Funds
Fund of Funds are changing
Ranging from the transition of the Traditional Balanced
Fund to hedge fund of funds
16
Building Products to meet demand
New Product Themes
Top managers from the big brand houses
Still strong demand particularly in equity income, globally and EM
Aberdeen GEMs
Axa Fram - George Luckcraft
Richard Buxton
Alternative asset classes
Real Estate still a diversifier particularly with institutions
Private Equity and infrastructure may become available to retail investors
through new regulation of long term investment funds being discussed by
the Commission
We may see a resurgence of hedge funds as UCITS
restrictions are tightened further and AIFMpassport
kicks in
17
Demands on Managers
In addition to the long list of acronyms:
ESMA
Squeezing of investment restrictions further may take best opportunities away from retail
investors
Aviva Inv G7 Fixed Income
60
50
40
30
20
10
0
-10
Aviva Inv G7 Fixed
Income USD (HF) %
Growth TR Def LC
LIBOR USD 1 Month
(IN) % Growth TR Def
LC
LGIM Global Macro
(HF) % Growth TR Def
LC
RDR
New share classes for UK, additional possible demand from taxation of rebates
UK Product Intervention
Naming convention
Asset class risk
AIFM v UCITS
Particular issue for Fund of Fund managers where NURS offers greater flexibility
18
Barriers to Offshore Distribution
Changes in PP regime
 Navigating the Transition from PP to AIFM passport
MIFID changes in Europe
 New classes for European Distribution - Ban or disclosure
Does this kill open architecture and move us to bancassurance?
Substance requirements and demands from Switzerland and Asia
 Passport of Manco may no longer be most viable position to take
One domicile cannot meet all distribution demands
 Position has been deteriorating for years
Regulatory arbitrage still exists
 In Europe we need this to be sorted out once and for all
19
Panel Discussion
20
21
Pat Wall
International Tax Update
Post Crisis Tax Reform
Anti Evasion
Anti Avoidance
US, EU and OECD
PwC
Slide 22
Portfolio Investing – The Tax Minefield


Investor tax reporting
EU Savings Directive
FATCA
Fund
Compliance with
special funds regime
Monitoring fund
residence
Investment Manager
Exemption monitoring
Permanent
establishment risk
management
Fund tax compliance
Investments
Withholding tax
management
PwC
Transactional taxes
Non-resident capital gains tax
Fund indirect taxes
23
US FATCA – Ireland Update
•
Ireland - Model I Intergovernmental Agreement with the US.
•
Irish laws & regulations will govern FATCA:
1.
2.
4.
5.
•
PwC
Annual reporting to Irish Revenue;
No 30% FATCA withholding tax on US income/gross proceeds;
No withholding 30% FATCA withholding recalcitrant accounts;
New account opening procedures required from 1 January 2014.
Deemed Compliant Status for Irish Funds
Slide 24
EU -
Financial Transaction Tax (FTT)
•
“New” draft proposal by 11 Countries
•
Original proposal released in September 2011; already rejected!
•
Would impact both EU ( all 27!) and non-EU financial institutions.
•
11 countries who have formally joined the Enhanced Cooperation on FTT
•
7 other countries already operate some form of FTT = Stamp Duty
•
Financial institutions need to be lobbying!
•
Multi layered nature of tax discriminates against investment via Funds!
PwC
Slide 25
EU - Alternative Investment Fund Managers
Directive (AIFMD) – Tax related Aspects
• Operating conditions (conflicts of
interest, treatment of inducements
and fair treatment of investors)
• The role of the risk management
function
• Delegation
• Reporting requirements and
frequency
• PE Risk
• Transfer Pricing
• VAT
February 2013
PwC
OECD Trace Project – What on Portfolio Investors
Existing Systems - “Traditional”
•Residence country:
Investor
Residence
Country
A
B
Repayment
claims and
residence
certificates
C
Payments
Paying Agent
Source Country
PwC
TAX
Tax Authority
Source Country
-investor reporting implicit in
requirement to obtain cert (tax
treaty)
- exchange on request
•Source Country: local paying
agent can apply TRS
•Weakness: layers of
intermediation, paying agent
may not have sufficient
information to apply TRS
(TRS = tax relief at source)
Cannes, 11 & 12 October 2012
27
Proposed New System - OECD TRACE
Investor
Residence
Country
A
B
Investor
information
C
Investor
information
Investor
Reporting
Non qualified/
Authorised
Intermediary
Country C
Qualified/
Authorised
Intermediary
Country A
Pooled rate
information
Investor
information
Qualified/Authorised
Intermediary/Paying
Agent
Pooled rate
information
Source country
paying agent
PwC
TAX
• TRACE = Treaty Relief and
Compliance Enhancement
• QI system plus Investor
Reporting
• Investor reporting to
Source/Residence Country
• Contractual arrangements &
procedures drafted
• To be finalised later this year
• Similar to EU Commission
recommendation (“Simplified
withholding tax relief
procedures”)
Tax Authority
Source
Country
Cannes, 11 & 12 October 2012
28
OECD - Report on Base Erosion and Profit
Shifting
• Key pressure areas
- hybrid mismatch arrangements
- the tax treatment of related party debt-financing,
captive insurance and other intra-group financial
transactions;
- transfer pricing
- effectiveness of anti avoidance measures (GAAR,
CFC rules, thin cap)
- availability of harmful preferential regimes
PwC
Slide 29
Post Crisis Tax Reform
Investors to pay a price.........




Impact on after tax profits..BEPS
Transactions taxes....FTT
Withholding Taxes...Dividends & Gains
Reporting....FATCA and cousins

Increased Cost and Risk
PwC
Slide 30
February 2012
Emerging Trends in Real Estate Europe
2012
Slide 31
A Quiet Revolution- Distribution of mutual funds in 2013
Simon Ellis, Principal- Strategies in Asset Management
Carne Fund Congress April 2013
The World as we knew it
•
•
•
•
•
Providers, as “factors”, control the value chain
Distribution highly fractured, except integrated banks
Ltd ‘professional’ buyers- ‘ignorance’ is bliss, for some
Push factors dominate sales and marketing
Fund management companies as ‘the good guys’
AND THEN…
Credit Crunch
Extended poor returns
Regulatory scrutiny
RDR
World as we are coming to know it
•
•
•
•
•
Industrialisation of advice
Dominance of platforms
Transparency and fees
Digital & Direct
Whatever next?
?
The Industrialisation of advice
• Fees remove the role of fund manager as “factor”
• The Distribution Firm determines the proposition
• Use of platforms, portfolio planning tools and
professional research
• Advisers becoming CRM’s- not allowed to go “off
piste”
• Development of adviser brands
• Use of DFM’s
• Concentration of asset flows to the biggest and/or the
best
35
Rise of platforms
• Pre RDR= 50% of flows, month 1- 75%!
Why? Adviser charging!
• Dominant players emerging- Top 20 are 82% of aua
• Costs of disintermediation for FM’s
• Another cost in the value chain, and controlling access to mass
distribution
• Technology driving decision-making
Transparency and fees
• The most immediate focus of attention
• Expect more demand-side pressure AND regulatory
attention
• Are there any practices that could be considered unfair,
unreasonable or unclear?
• Who’s winning the debate over costs vs. value?
Digital and Direct
•
•
•
•
Who do customers trust?
“I’m online…are you?”
Technology is the disrupting force
Transparency, are you worth it?
“It’s not the future, it’s the
here and now!”
A Quiet Revolution…but it’s making a
Big Bang!