EFAMA Response to ESMA s Consultation Paper on. regulatory technical standards on types of AIFM.

Transcription

1 EFAMA Response to ESMA s Consultation Paper on Draft regulatory technical standards on types of AIFMs EFAMA 1 welcomes the opportunity to provide a response on the ESMA Consultation Paper on Draft regulatory technical standards on types of AIFM. Please find below first a few general comments and then our replies to the specific questions raised in the Consultation Paper. A. General Comments 1. AIFM managing both open ended and closed ended AIFs EFAMA urges ESMA to modify the proposed Article 1 (1) of the RTS to clarify that an AIFM may manage at the same time both open ended and closed ended AIF. AIFMD Level 1 does not limit an AIFM to the management of either open ended or closed ended AIF. Article 2 (2a) AIFMD only provides that for the scope of application of the AIFMD it is of no significance whether the AIF belongs to the open ended or closed ended type. This article cannot be read as a limitation of activity to management of one or the other type of AIF. Therefore, EFAMA proposes the following amendment of the proposed Article 1 (1) RTS: Proposed Regulation An AIFM may be either of the following: - an AIFM of open ended AIF(s); - an AIFM of closed ended AIF(s). Proposed amendment An AIFM manages AIFs that may be: - open ended AIF(s) and/or, - closed ended AIF(s). 2. Interaction with other legislation 1 EFAMA is the representative association for the European investment management industry. EFAMA represents through its 27 member associations and 60 corporate members about EUR 14 trillion in assets under management of which EUR 8.7 trillion managed by 54,000 investment funds at end September Just under 36,000 of these funds were UCITS (Undertakings for Collective Investments in Transferable Securities) funds. For more information about EFAMA, please visit rue Montoyer 47, B 1000 Bruxelles Fax e mail : info@efama.org VAT Nr BE

2 2 EFAMA understands that the proposed draft regulatory technical standards (RTS) only apply to AIFs and AIFM. In particular, EFAMA understands that the proposed definition of closed ended and open ended funds should only apply in the context of the AIFMD. This definition does not apply to UCITS for which the UCITS Directive also contains investment rules that distinguish open ended and closedended funds. B. Replies to specific questions raised II. Background Q1: Do you agree with the approach suggested above on the topics which should be included in the draft regulatory technical standards? If not, please state the reasons for your answer and also suggest an alternative approach. EFAMA regrets that ESMA has decided not to include into this Consultation Paper topics which have been covered by the discussion paper of 23 February 2012, in particular 2 : The vehicles which are not AIFMs or AIFs or are exempted from the provisions of the AIFMD; The treatment of UCITS Management companies; The treatment of MiFID firms and Credit institutions. These topics are of utmost importance to EFAMA Members and EFAMA urges ESMA to clarify questions raised in this regard in the discussion paper without further delay in order to allow EFAMA members timely application of the rules stemming from the AIFMD. In this regard please refer to our EFAMA response to the Discussion Paper as enclosed hereto. III. AIFMs of open ended/closed ended AIF(s) Q2: Do you agree with the proposed definition of AIFMs managing AIFs of the openended/closed ended type? If not, do you have any alternative proposal, in particular as regards the relevant frequency of redemptions for the open ended funds? EFAMA agrees with the proposed definition of AIFs of the open ended/closed ended type, subject to the following comments As a general comment, EFAMA urges ESMA to modify the proposed Article 1 (1) of the RTS to clarify that an AIFM may manage at the same time both open ended and closed ended AIF. 2 Consultation Paper, II. Background, N. 7.

3 3 AIFMD Level 1 does not limit an AIFM to the management of either open ended or closed ended AIF. Article 2 (2a) AIFMD only provides that for the scope of application of the AIFMD it is of no significance whether the AIF belongs to the open ended or closed ended type. This article cannot be read as a limitation of activity to management of one or the other type of AIF. Therefore, EFAMA proposes the following amendment of the proposed Article 1 (1) RTS: Proposed Regulation An AIFM may be either of the following: - an AIFM of open ended AIF(s); - an AIFM of closed ended AIF(s). Proposed amendment An AIFM manages AIFs that may be: - open ended AIF(s) and/or, - closed ended AIF(s). EFAMA supports ESMA s opinion that special arrangements for management of liquidity risk such as lock up periods, side pockets or gates should not be taken into account for determining whether the right of redemption is exercisable by investors at least once a year.logically, however, lock up periods of more than one year should be taken into account when determining the openended/closed ended nature. EFAMA suggests that in order for an AIF to qualify as open ended AIF, the length of the initial lock up period should be restricted to a timeframe one could reasonably expect in relation to the openended fund model. In this regard, ESMA should take into account the approach for distinguishing certain types of closed ended funds enshrined by Article 3(2)(b) and Article 21(3) third subparagraph of the Level 1 Directive. In the context of these provisions, AIFs which have no redemption rights exercisable during the period of 5 years from the date of the initial investments are subject to specific rules tailored to their closed ended nature. Some EFAMA Members argued that an initial lock up period of 5 years or more represents an appropriate borderline for differentiating closedended from open ended AIFs. Other EFAMA Members suggested not to include the same borderline for AIFs independently of the nature of assets held by the AIFs. They pointed to the approach taken in some Member States which does not generally give a specific date, but notes in its perimeter guidance that 6 month redemptions for a liquid securities fund would not be treated as open ended, but has left open the option that 6 months or a year would be reasonable for less liquid assets. Article 1.2(b) requires that open ended funds must meet the following condition "the transaction is carried out at a price that does not vary significantly from the net asset value per unit/share of the AIF available at the time of the transaction". Two issues arise with this: 1. It is not clear whether the reference "at the time of the transaction" means when the order is accepted, executed or finally settled. In the case of real estate funds, these will take place over a number of months. It would be useful to clarify that "the time of the transaction" means the time when the investor's entitlement is determined or calculated in accordance with the fund rules.

4 4 2. The second area that is unclear is how a dealing spread or redemption charge would be construed in this context. For some funds, the spread can be material and result in the redemption price varying significantly from the net asset value per unit/share. EFAMA does not believe that ESMA intends the operation of a spread/redemption charge to result in an otherwise open ended AIF being reclassified as closed ended. It would be helpful to clarify that a spread/redemption should not to be taken into account in determining whether the redemption price varies significantly from the net asset value per unit/share. EFAMA suggests using the phrase "realised on a basis calculated wholly or mainly by reference to the value of the AIF's assets". It would also be helpful if ESMA added guidance to the effect that account may be taken of factors other than the value of AIF's assets that may result in the sum realised failing to reflect the true net asset value, including the payment by the investor of charges and/or of an early redemption penalty. Q3: Please provide qualitative and quantitative data on the costs and benefits that the proposed definition of AIFMs managing AIFs of the open ended/closed ended type would imply. Q4: Do you consider that any possibility to redeem the AIF s units/shares on the secondary market and not directly from the AIF should be taken into consideration when assessing whether an AIF is open ended or closed ended? Or do you consider that, as within the UCITS framework, only any action taken by an AIFM to ensure that the stock exchange value of the units of the AIF it manages does not significantly vary from their net asset value should be regarded as equivalent to granting to unit holders/shareholders the right to redeem their units or shares out of the assets of this AIF? EFAMA is in favor of an alignment with the approach taken under the UCITS framework. EFAMA therefore considers secondary trading should be deemed as equivalent to direct or indirect redemptions if the AIFM takes action to ensure that the stock exchange values of the AIF does not significantly differ from its net asset value. This being said, EFAMA does not believe that the general possibility to dispose of AIF units/shares on the secondary market should have relevance for determining the type of AIFs. After all, secondary market trading is common in different closed ended products, but is usually conducted by third parties without closer involvement of the product provider or any implications for the product as such. Especially, no redemptions out of the portfolio assets are necessary to effectuate the disposal. Q5: Do you agree with the proposed approach as regards the treatment of hybrid structures? If not, please explain why and, if possible, provide alternative proposals.

5 5 EFAMA agrees with the approach proposed by ESMA Article 1(4) of Annex VI as regards the treatment of structures whose nature changes from open to closed ended or vice versa provided that the requirement to adapt to new rules is limited to the particular AIF the type of which has changed. It would not be appropriate to demand changes in several closed ended AIFs managed by the same AIFM if only one of these AIFs acquires the open ended status. In these circumstances, it is important to recognize that valuation and liquidity management standards may vary among the AIFs managed by one AIFM. IV. Other criteria to determine the application of the AIFMD to certain types of AIFMs Q6: Do you see merit in clarifying further the notion of contracts with prime brokers and/or the notion of internally or externally managed? If so, please provide suggestions. In particular, if your answer is yes for the notion of internally or externally managed, please indicate which of the criteria already in recital (20) of the AIFMD need additional clarifications. EFAMA sees no merit in further clarification of the notion of contracts with prime brokers. The notion of internally or externally managed could be clarified by inserting a part of Recital 20 of the AIFMD in the proposed RTS in order to increase its legal certainty. AIFs should be deemed internally managed when the management functions are performed by the governing body or any other internal resource of the AIF. Where the legal form of the AIF permits internal management and where the AIF s governing body chooses not to appoint an external AIFM, the AIF is also AIFM and should therefore comply with all requirements for AIFMs under this Directive and be authorised as such. An AIFM which is an internally managed AIF should however not be authorised as the external manager of other AIFs. An AIF should be deemed externally managed when an external legal person has been appointed as manager by or on behalf of the AIF, which through such appointment is responsible for managing the AIF. Where an external AIFM has been appointed to manage a particular AIF, that AIFM should not be deemed to be providing the investment service of portfolio management as defined in point (9) of Article 4(1) of Directive 2004/39/EC, but, rather, collective portfolio management in accordance with this Directive. Q7: Do you consider that there is a need to develop further typologies of AIFMs where relevant in the application of the AIFMD? If yes, please provide details on the additional typologies sought. Some EFAMA Members do not see the need for developing further typologies of AIFMs. Other EFAMA Members believe it would be helpful in view of the proper functioning of the AIFM passport (Article 33 AIFMD) to develop further typologies. EFAMA Members in favour of further development of the definition would suggest a determination based on the applicable investment strategies or a definition based on a possible capital protection.

6 6 4 February 2013 [ ]