UCITS Handbook )WILEY. Edited by Christian Szylar. How to Set up, Monitor, Manage and Distribute a UCITS Fund

Transcription

1 UCITS Handbook How to Set up, Monitor, Manage and Distribute a UCITS Fund Edited by Christian Szylar )WILEY

2 Table of Contents Introduction Christian SZYLAR xiii Chapter 1. Setting up a UCITS Fund 1 Jerome WIGNY and Celine WiLMET 1.1. Introduction to the UCITS concept A half-century of legal developments '< Legal/regulatory framework EU passport/brand Legal forms and structures Legal forms available Capital requirements Multicompartment/class structures Management Choosing between legal forms and structures Issue/redemption of shares/units Investors Open- versus closed-ended Issue/redemption price Valuation of assets Suspension of issues/redemptions Parties involved Promoter Central administration Depositary Auditor Investment manager Investment adviser 27

3 vi UCITS Handbook Distributor Legal documentation Prospectus Key investor information document Articles of incorporation/management regulations Agreements with service providers Other documents Reporting obligations Expenses Formation expenses. ~ Ongoing expenses Prospectus disclosure CSSF authorization Approval process" Timing Withdrawal of CSSF approval Incorporation process Investment company FCP 40 Chapter 2. UCITS Management Companies 41 Jerome WiGNY and Celine WiLMET 2.1. Introductory comment Luxembourg legal/regulatory framework Conditions for setting up a Chapter 15 Management Company CSSF approval Functions Capital requirements Legal forms Management Auditor Shareholders Registered office and central administration Operating conditions applicable to Luxembourg management companies Organizational requirements Conflicts of interest Rules of conduct Risk management CSSF supervision Approval process CSSF approval and inclusion on the list 69

4 Table of Contents vii Reporting to the CSSF CSSF taxes Withdrawal of CSSF authorization Management company passport Notification procedure Cooperation agreement Supervision 74 Chapter 3. Risk Management in the Context of UCITS IV 77 Thierry L6PEZ and Benjamin GAUTHIER --' 3.1. Introduction Regulator expectations From European directives to local regulation Risk management requirements Market risk Definition How to measure market risk Regulator expectations Risk profiling The commitment approach Value at risk (VaR) Global exposure: VaR versus commitment Leverage Counterparty risk Definition Regulator expectations Liquidity risk management Definition Regulator expectations Ill How to approach liquidity risk in the context of investment funds. Ill Methods and techniques to measure and monitor liquidity risk (asset side) Methods and techniques to measure and monitor liquidity risk (liability side) Limiting redemptions Operational risk Definition Regulator expectations How to approach operational risk for UCITS Internal risk limits Disclosure 124

5 viii UCITS Handbook Chapter 4. Counterparty, Issuer and Concentration Risk Management for UCITS funds 127 Romain BERRY 4.1. Introduction: no institution is "too big to fail" Background and definitions Managing counterparty risk within a UCITS framework Measuring counterparty risk for a UCITS fund Controlling and mitigating counterparty risk of a UCITS fund Limits -..._ Netting Collateral management Hedging Early termination and other legal tools Recouponing Guarantees Central counterparty clearing house (CCCH) Policy and corporate governance guidelines to monitor counterparty risk Measuring future counterparty credit exposure Definitions Formulation Managing issuer risk UCITS regulations on issuer risk Measuring issuer risk Stress testing issuer risk Hedging issuer risk Concentration risk management Concentration risk within the UCITS framework Identifying concentrations in a fund Tools to manage concentration risk Conclusion: what lies in the future? Bibliography 183 Chapter 5. UCITS - The Investment Limits 185 Andrew P. WHITE 5.1. Introduction Definitions Structure Investment restrictions Permitted investments Maximum of 10% NAV in securities other than those explicitly allowed 193

6 Table of Contents ix Maximum of 100% NAV global exposure Maximum of 20% NAV in deposits made with the same body Maximum of 10% NAV OTC derivative counterparty risk exposure with approved banks Maximum of 5% NAV OTC derivative counterparty risk exposure with counterparties other than approved banks Maximum of 10% NAV in securities or money market instruments of the same issuer (except qualified institutions) Maximum of 40% NAV in securities and derivatives of issuers in which more than 5% is invested in ~ Maximum of 20% NAV in securities or money market instruments issued by the same body (except qualified institutions) Maximum of 35% NAV in government and public body securities Maximum of 25% NAV for bonds issued by EU credit institutions subject by law to special public supervision designed to protect bond holders (covered bonds) Maximum of 80% NAV in the covered bonds of issuers in which more than 5% is invested in Maximum of 20% NAV in respect of investment in the same issuing group Index-tracking: maximum of 20% NAV in securities or money market instruments of the same issuer (except qualified institutions) Index-tracking: Max 35% NAV in securities or money market instruments of the same issuer (except qualified institutions) for a single issuer Minimum of six issues and maximum of 30% per issuance when more than 35% NAV is invested in a single public issuer Maximum of 20% NAV in any one CIS Maximum of 30% NAV in aggregate in non-ucits CIS Significant influence of voting shares per single issuing body (excluding certain public bodies) Maximum of 10% of non-voting shares per single issuing body (excluding certain public bodies) Maximum of 10% of the debt securities of any single issuing body Maximum of 25% of the units of any single CIS (excluding certain public bodies) Maximum of 10% of money market instruments of any single issuing body Six-month derogation A fund may borrow up to 10% of NAV for temporary purposes 211

7 x UCITS Handbook No uncovered sales of transferable securities, MMIs or other financial instruments Look through Market practices and specific cases Trash ratio VaR Definition of transferable security Borrowing Other Summary Data issues Specific issues Data consistency OTC data Technology advances Summary Checking process Ex-post Ex-ante Conclusion 224 Chapter 6. UCITS Distribution 225 Mark EVANS 6.1. Introduction and overview Domestic distribution France Germany Italy Switzerland UK Cross-border distribution Introduction Development of the UCITS Directive Key domiciles of cross-border UCITS Attractiveness of domestic markets for cross-border distribution Key target markets for cross-border UCITS distribution The distribution process Public distribution Private placement Fund wrappers Distribution channels 244

8 Table of Contents xi Introduction Channel architecture Distribution Channels Banking: retail/private Insurance/Bank-Insurance (bancassurance) Fund platform growth and the role of intermediaries Boutique Intermediaries Independent Financial Advisors (IFA) Markets to target Appropriate products.-.-." An effective marketing strategy Fees to maximize sales Distribution agreements, fees and payments Future thoughts: UCITS in transition 259 Chapter 7. The UCITS Management Company and Delegation 261 Killian BUCKLEY and Ciara O' SULLIVAN 7.1. Introduction Overview of chapter coverage History of the organizational structure of a UCITS Evolution to UCITS IV UCITS IV organizational structure, conflicts of interest and rules of conduct Roles and responsibilities within the organizational structure The evolving role of the depositary Reporting matrix-how parties interact for reporting UCITS IV organizational framework - applying best practice Driving best practice MiFID-like requirements Typical UCITS IV structure Conclusion 283 Chapter 8. UCITS Taxation. 285 Andre PESCH, Romain JACQUES and Ludovic DEFLANDRE 8.1. Introduction The contractual form: the Fonds Commun de Placement The corporate form: investment company with variable or fixed share capital Taxation of the fund Corporate income and net worth tax Registration duty Annual subscription tax 288

9 xii UCITS Handbook Tax on dissolution Indirect taxation Taxation of investments made by UCIs Taxation at the level of the UCI investor Withholding tax Luxembourg individual investor Foreign investors EU Savings Directive Directors' fees Management and advisory companies Corporate taxation Indirect taxation Impact of UCITS IV General considerations Additional queries and open points from a VAT point of view Chapter 9. Alternative UCITS 311 Christian SZYLAR 9.1. Introduction The main drivers for packaging hedge fund strategies under UCITS Alternative strategies under UCITS and challenges What is an alternative UCITS? The cost of liquidity on alternative UCITS returns Financial derivative instruments Swap Contracts for difference The forward contract The futures contract Options Warrant Conclusion : 350 Bibliography 353 List of Authors 355 Index 357