New York 6 October Welcome & introduction. Camille Thommes Director General, ALFI

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1 H

2 UCITS Workshop

3 New York 6 October 2011 Welcome & introduction Camille Thommes Director General, ALFI

4 New York 6 October 2011 UCITS IV: where do we stand and what s next? Moderator: Denise Voss, Franklin Templeton Investments Panelists: Marie-Elisa Roussel, PwC Ravi Beegun, KPMG Jacques Elvinger, Elvinger Hoss & Prussen

5 AGENDA 1. Update on Key Figures 2. Overview of UCITS IV and current status 3. Management Company Passport 4. Master-Feeder Funds 5. Mergers 5

6 1. UPDATE ON KEY FIGURES 6

7 European fund industry UCITS & NON-UCITS UCITS Country Assets millions Market share Country Assets millions Market share Luxembourg Luxembourg France France Germany Ireland Ireland United Kingdom United Kingdom Germany Switzerland Switzerland Italy Spain Spain Italy Sweden Sweden Austria Belgium Others Others Total Total Figures as at June 30, 2011 Source: EFAMA 7

8 Strong development after UCITS I Net assets of Luxembourg domiciled UCIs July Growth rate 12 months 8.44% YTD: -0.42% Figures as at July 31, 2011 Sources: ALFI/CSSF 8

9 Strong development after UCITS I Number of Luxembourg domiciled funds 4000 Number of funds July growth rate 12 months 5.95% YTD: 3.49% Figures as at July 31, 2011 Sources: ALFI/CSSF 9

10 Luxembourg fund industry 25 % Market shares (%) of promoters 23,1 of Luxembourg domiciled funds by country of origin in terms of net assets in terms of assets under management 20 17,0 15, , ,1 7,8 5,3 4,9 2,1 1,7 1,7 0 US DE CH GB IT FR BE NL LU SE Others Figures as at June 30, 2011 Source: CSSF 10

11 The top 10 countries of distribution outside Europe South Africa (ZA) 4 2 Bahrain (BH) 11 4 Korea (KR) 13 4 Number of Japan (JP) 15 3 top 50 fund managers Macau (MO) 16 7 Hong Kong (HK) Peru (PE) Taiwan (TW) Chile (CL) Singapore (SG) from Luxembourg from other countries Source : Lipper Hindsight, PWC Global Fund Distribution March 2011

12 Domicile share of authorisations for cross-border distribution in % Germany (DE) 0,8 Belgium (BE) United Kingdom (UK) 1,2 2, % of all UCITS registered in at least 3 countries (including home state) France (FR) 3,0 Ireland (IE) 14,1 Luxembourg (LU) 74, Source : Lipper Hindsight, PWC Global Fund Distribution March 2011

13 2. Overview of UCITS IV and current status 13

14 From UCITS to UCITS IV UCITS 20 December 1985 UCITS III 21 January 2002 UCITS IV 13 July 2009 Driving Forces Permit cross-border offering of open-ended investment funds to EU investors Harmonization of investor protection rules Marketing through simple notification process - passport More asset classes eligible (bank deposits, units of other UCIs, MM and use of derivatives) Benefits Widening of investment power and product offering in UCITS Enhanced Risk Management Procedures Permit industry consolidation, improve efficiency and increase investor protection Principal amendments to UCITS regime: Simplified notification procedures KII EU-wide fund merger regime Management Company Passport Master-Feeder structures 14

15 REGULATOR COORDINATION UCITS IV in a nutshell Reduce Administrative Burden Notification Procedure Increase Investor Protection Key Investor Information Increase Market Efficiency Fund Mergers ManCo Passport Master-Feeder Date of Implementation : July 1st,

16 UCITS IV Timeline and other amendments Timeline for implementation in Luxembourg Effective date 1 st July 2011 except grandfathering for simplified prospectus until 1 st July 2012 Other enhancements to the UCITS law General: Permission for cross-sub-fund investments in umbrella structures No longer an obligation to mail annual accounts to investors No obligation to prepare translation of articles of incorporation in English Taxation: ETFs are exempt from subscription tax (taxe d abonnement) Compartments reserved for pension funds are exempt from taxe d abonnement Foreign UCI and UCITS managed by a Luxembourg management company are not subject to Luxembourg taxation 16

17 UCITS IV Management Company Passport The goal of the Management Company Passport -A Management Company authorised in its home Member State can act as Management Company for UCITS established in other EU Member States. Authorization, applicable law, supervision UCITS ManCo Business and organizational considerations Location and structure Legal Tax 17

18 UCITS IV Management Company Passport Operating conditions applicable to all Management Companies and Self Managed SICAVs Organizational Measures Independent compliance and internal audit functions Complaints handling, personal transactions, recordkeeping Identification, prevention, management and disclosure of conflict of interests Conduct of Business Rules Duty to act in the best interests of UCITS and investors Client order handling, reporting on subscriptions and redemptions to investors Best execution Inducements 18

19 UCITS IV Management Company Passport Enhanced Risk Management Process Updated Risk Management Process Monitor and measure Market Risk, Counterparty Risk + Liquidity Risk + Operational Risk Calculation of global exposure (Commitment or VaR) based on fund Risk Profile Independent review of VaR model and utilization Stress testing and Back testing Valuation of OTC derivatives Communication to the CSSF (authorization + annual + significant change) Financial Statements and Prospectus Disclosures (by December 31, 2011) Leverage (expected, average) Global Exposure determination methodology VaR (min, max, average) 19

20 UCITS IV Master Feeder Funds Agreements Between feeder and master Information sharing agreements depositary auditor Investment restrictions Feeder assets = at least 85% of master 15%: other qualifying assets Global exposure to derivatives 20

21 UCITS IV Master Feeder Funds Organization considerations Coordination of calculation and publishing NAV Coordination of year ends Reporting Tax Prospectus / KIID Feeder annual report 21

22 UCITS IV Mergers Merger approval Adoption of merger project Regulatory approval Investors Pre-notification of absorbing UCITS Right to redeem Control and reporting Tax 22

23 New York 6 October 2011 Thank You Questions?

24 Coffee break

25 New York 6 October 2011 Optimising distribution Moderator: Lou Kiesch, Deloitte Panelists: Michèle Eisenhuth, Arendt & Medernach Martin Bock, RBC Dexia Investor Services Martin Dobbins, State Street Bank

26 Agenda 1) Update on KIID 2) The simplified notification procedure; where do we stand? 3) Deep dive into Distribution

27 Update on KIID The clock is ticking; is everybody ready? - Lessons learned? - Going forward? Debate on responsibility including dissemination of KIIDs Technical and practical challenges?

28 Update on KIID Specific requirements to change the KIID CSSF requirements to change the simplified prospectus to KIID Update on main foreign jurisdictions What is the industry doing: Insourcing versus outsourcing What part of the KIID?

29 Simplified notification procedure - Where do we stand in Luxembourg; what has changed? - Different methods and different interpretations? - And the rest of the world? - Ongoing maintenance Forecast for UCITS V - Analysis / Anticipation of cost factor

30 Deep dive into distribution General update: What has worked and what did not work? What are the new initiatives in the market? (products; trends in distribution ) Geographical news: Which countries performed well; which ones performed less well? Regulatory forecast: MIFID review; PRIP; RDR; FATCA Outlook on AIFMD from a distribution perspective.

31 Thank you.

32 New York 6 October 2011 Future operating model Moderator: Panelists: Michael Ferguson, Ernst & Young Denise Voss, Franklin Templeton Investments Freddy Brausch, Linklaters LLP Sanjiv Sawhney, Citi

33 Current fund management models Investment company with management company Promoter Investment Company Board of Directors Depositary Management company Promoter s own / Third-party Prime broker Paying Agent(s) Investment manager Investment advisor Distributors Administrator registrar, transfer, domiciliation agent An investment company must either appoint a management company Future Operating Model October 2011 Page 33 help

34 Current fund management models Self-managed investment company Promoter Self-managed investment company Board of Directors Depositary Prime broker Paying Agent(s) Investment manager Investment advisor Distributors or designate itself as self-managed Future Operating Model October 2011 Page 34 Administrator registrar, transfer, domiciliation agent help

35 Current fund management models Common fund (FCP) FCP Depositary Promoter Management company Promoter s own / Third-party Prime broker Paying Agent(s) Investment manager Investment advisor Distributors A common fund must appoint a management company Administrator registrar, transfer, domiciliation agent Future Operating Model October 2011 Page 35 help

36 Current fund management models h Management activities include: h Administration Investment management Distribution In practice, management companies Often delegate these functions Concentrate on overseeing and supervising the functions delegated Can be readily available (third-party management companies / independent directors) Future Operating Model October 2011 Page 36 help

37 Current fund management models Cross-border h management Future Operating Model October 2011 Page 37 help

38 Enhanced regulatory requirements Management company substance h Management companies are subject to a number of substance requirements, concerning: Organizational structure Conflicts of interest Conduct of business rules Risk management Future Operating Model October 2011 Page 38 help

39 Q&A h The Luxembourg advantage Globally recognized financial center Global distribution hub Politically and economically stable Certainty in respect of regulatory and tax environment Flexible structuring possibilities International, qualified, experienced workforce Full and flexible range of services Strong governance and compliance culture Future Operating Model October 2011 Page 39 help

40 Thank You

41 Buffet lunch