Cross-border alternative fund distribution

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1 Cross-border alternative fund distribution Expanding your distribution footprint 8 December 2016

2 Agenda 9:00 am New opportunities for distribution under AIFMD. New countries and distribution channels Presentation by Rafael Aguilera, Executive Director, Advisory Services, EY Luxembourg 9:25 am Notification process under AIFMD and related distribution channels Presentation by Rafael Aguilera 9:50 am Panel: Brexit - distribution post Brexit - workable models Moderator: Rafael Aguilera Panelists: Nigel P. Williams, Chairman, Managing Partner, Conducting Officer, Royalton Partners Robert White, Senior Manager, Wealth and Asset Management, EY Luxembourg Stephen Roberts, Head of Business Development, Lemanik Asset Management S.A. 10:35 am Third countries access under AIFMD: threat or opportunities Presentation by Rafael Aguilera 11:00 am Networking coffee Page 2

3 New opportunities for distribution under AIFMD. New countries and distribution channels Page 3

4 Reverse solicitation Definition of capital raising under AIFMD The AIFMD National Private placement Regime is a mechanism allowing the marketing by AIFMs of AIFs that are not allowed to be marketed under the AIFMD domestic marketing or passporting regimes. This principally relates to the marketing of non- European Union (EU) AIFs and AIFs managed by non-eu AIFMs. Private placement Reverse solicitation or passive marketing is the marketing which is not at the direct or indirect initiative of the AIFM. Capital raising under AIFMD Distribution Marketing According to the Directive, Marketing means a direct or indirect offering or placement at the initiative of the AIFM or on behalf of the AIFM of units or shares of an AIF it manages to or with investors domiciled or with a registered office in the European Union. Distribution under the AIFMD corresponds to all the methods used to distribute notified AIFs in the EU. Page 4

5 AIFM: statistics and facts in Luxembourg Market size (figures as of August 2016) AIFM: 841 (605:A; 236: R) AIF: 1,999 AUM: (in b EUR) (+3.5%) Cross-border notifications: 1,758 (+7.5%) (31 December 2015) Banks: 141 UCITS: 1,894 AUM: 3,003.4 (in b EUR) (+16.5%) Cross-border notifications: 5,803 (+11.6%) (31 December 2015) Page 5

6 Applicability of the passporting regime versus private placement regime AIFM AIF Target distribution country Marketing passport regime National private placement regime (NPPR) May be available from 2015 (*) Available until 2018 (*) May be available from 2015 (*) Available until 2018 (*) May be available from 2015 (*) Available until 2018 (*) EU-based Non-EU based (*) Subject to ESMA approval Page 6

7 Impact on distribution models 1 New distribution models Depending on the type of the distribution models, the impacts of MiFID II will slightly differ Typical distribution models are likely to evolve to be able to cope with the prohibition of inducements, however, some new business models will appear (for example fee-based advisers and execution only brokers in the US E*Trade and TD Waterhouse) 2 Product differentiation European investors who are accustomed to buying investment funds have the impression of receiving free advice from the distributor Due to MiFID II, clients will pay directly for independent advice. Product differentiation could be an incentive for clients to change their minds smoothly and justify the payment of a direct fee to the distributor Successful asset managers already enjoyed changes in the inducement model to launch new product lines. For instance, Vanguard decided to launch EFTs when the U.S. market began transitioning from a commission-based sales model to fees for advice. Nowadays, Vanguard ETF business has reached US$280 b of assets and is close to overtake the second position held by the State Street Global Advisers 3 Incentives for distributors The main current incentives (inducement) for distributors to sell investment products will be prohibited with MiFID II for independent advice services Product managers will need to develop new incentives to encourage distributors to sell their investment products Page 7

Potential to reach new investors / new markets? Overview of the retail and institutional markets Retail Institutional Main HNWI UHNWI Insurers Pension funds Corporates Non-profit org.

8 Potential to reach new investors / new markets? Overview of the retail and institutional markets Retail Institutional Main HNWI UHNWI Insurers Pension funds Corporates Non-profit org. Sovereign wealth funds Other Private Equity r a a a a a a a a Funds Real Estate r a a a a a a a a Hedge Funds r a a a a a a a a Investment mandates r r a a a a a a a Key success factors for cross-border distribution under the AIFMD Distribution excellence Distribution models D E AIF ManCo C A B A. Market intelligence B. Product and pricing design C. Distribution excellence D. Branding excellence E. Operational excellence Multi-asset class assemblers Active channels Guided architecture Fiduciary management Asset gatherers Direct sales Source : EY analysis (2013) Page 8

9 Voting question Have you been able during 2016 to fully leverage the marketing passport within the EU? Yes No Not fully Page 9

10 Notification process under AIFMD and related distribution channels Page 10

11 UCITS product passport versus AIFMD management company (ManCo) passport Notification process under UCITS Current notification process under AIFMD Notification process under AIFMD from 2015 (*) ManCo EU AIF EU AIF Non-EU AIF Initial registration UCITS Maintenance EU AIFM EU AIFM Non-EU AIFM Home state regulator Home state regulator Max 20 days (**) Home state regulator Max 20 days (**) Host state regulator Host state regulator Host state regulator KINGPIN of the notification process UCITS Management company Product passport Management company passport (*) Subject to ESMA approval (**) as from the date of receipt of the complete notification file Page 11

12 Distribution through marketing passport The marketing passport provides the right for EU AIFMs to market EU AIFs to professional investors in all Member States. Marketing of EU AIFs in EU Member States is subject to the following requirements: Marketing of an EU AIF in the home Member State of the AIFM (according to Article 31 and Annex III) Notification requirements: A notification letter identifying the AIF it intends to market and information on that AIF's place of establishment The rules or instrument of incorporation of the AIF The name of the depositary of the AIF A description of, or any information on, the AIF available to investors (e.g., an offering memorandum) If a feeder AIF, information on the place of establishment of the master AIF Any additional information required pursuant to Article 23 (disclosure to investors) and If relevant, information on the arrangements in place to prevent shares or units in the AIF from being marketed to retail investors Marketing of an EU AIF in Member States other than in the home Member State of the EU AIFM (according to Article 32 and Annex IV) Notification requirements: A notification letter identifying the AIF it intends to market and information on that AIF's place of establishment The rules or instrument of incorporation of the AIF The name of the depositary of the AIF A description of, or any information on, the AIF available to investors (e.g., an offering memorandum) If a feeder AIF, information on the place of establishment of the master AIF Any additional information required pursuant to Article 23 (disclosure to investors) Information on the type of investment strategy of the AIF (*) Indication of the Member State in which it intends to market the units or shares of the AIF and Information about arrangements made for marketing of the AIFs and information on the arrangements in place to prevent shares or units in the AIF from being marketed to retail investors ( ) as set forth in Commission Regulation 231/2013 Page 12

13 Retail distribution under Article 43 of AIFMD Marketing to retail investors remains subject to each Member State s specific requirements which may be allowed: Whether AIFs are marketed on a domestic or cross-border basis and Whether they are EU or non-eu AIFs According to Article 43 of the AIFMD, each EU Member State may impose stricter requirements applicable to the AIFs marketed to professional investors. However, Member States shall not impose stricter or additional requirements on EU AIFs established in another Member State and marketed on a cross-border basis than on AIFs marketed domestically. Member States allowing the marketing of AIFs to retail investors had to inform the European Commission and ESMA by 22 July 2014, of: The types of AIFs of which AIFMs may market to retail investors in their territory and Any additional requirements that the Member States impose for the marketing of AIFs to retail investors Page 13

14 Panel: Brexit - distribution post Brexit - workable models Page 14

15 Voting question Do you believe in a hard or soft Brexit? Hard Soft Page 15

16 Panel Panelists Nigel P. Williams, Chairman, Managing Partner, Conducting Officer, Royalton Partners Robert White, Senior Manager, Wealth and Asset Management, EY Luxembourg Stephen Roberts, Head of Business Development, Lemanik Asset Management S.A. Moderator: Rafael Aguilera, Executive Director, Advisory Services, EY Luxembourg Page 16

17 Third countries access under AIFMD: threat or opportunities Page 17

18 AIFMD opening to third countries Key topics Issues identified by ESMA relating to functioning of the EU AIFMD passport: Divergent approaches with respect to marketing rules Divergent definitions of what constitutes a professional investor Varying interpretations of what activities constitute marketing and material changes under the AIFMD passport Issues identified by ESMA relating to functioning of the NPPRs: No common rules Duplicating of filing/reporting obligations Concentration of investment opportunities in certain jurisdictions ESMA approach when considering extension of AIFMD passport Possible suppression of NPPRs Business opportunities Page 18

19 AIFMD opening to third countries (1/2) Non-EU country Cooperation Investor protection No significant market disruptions No obstacles for competition Monitoring of systematic risk ESMA conclusion USA ESMA would have benefited from more time to assess investor protection Uneven level playing field Extensive reporting obligations but different from AIFMD Delay decision Guernsey Jersey Hong Kong Incomplete information Unclear whether level playing field Delay decision Switzerland Upon implementation of SESTA as from 1 January 2016 Singapore Scarce and incomplete information ESMA would have benefited from more time to assess investor protection Barriers to entry Not enough evidence Delay decision Page 19

20 AIFMD opening to third countries (2/2) Non-EU country Cooperation Investor protection No significant market disruptions No obstacles for competition Monitoring of systematic risk ESMA conclusion Australia Expectations of good supervisory cooperation based on previous engagements Difficult to predict in the long term Bermuda Scarce information ESMA has no definitive advice until final version Delay decision Canada Cayman Islands Scarce information No final advice can be provided by ESMA No final advice can be provided by ESMA Delay decision Isle of Man Scarce information Delay decision Japan Page 20

21 Current status AIFMD opening to third countries ESMA gathered intelligence on investor protection, competition, potential market disruption and monitoring of systemic risk with respect to the following non-eu countries: a. Malaysia b. Egypt c. Chile d. Peru e. India f. China g. Taiwan No assessment has been done yet by ESMA on these countries because: No Memorandum of Understanding has been signed between those non-eu supervisory authorities and ESMA The current level of activity by entities from these countries within the EU did not justify a detailed assessment at this stage Page 21

22 Voting question Do you consider third countries access to the EU market as a threat for UCITS and AIFs? For both For UCITS only For AIFs only For none of them Page 22

23 Thanks

24 Contacts Rafael Aguilera Executive Director Advisory Services Page 24

25 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com Ernst & Young S.A. All Rights Reserved. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com/luxembourg

AIFMD Time for reflection and extension ESMA release their advice and opinion

AIFMD Time for reflection and extension ESMA release their advice and opinion Aisling Costello Senior Manager Investment Management Deloitte Paola Liszka-Drapper Senior Manager Advisory & Consulting Deloitte