CMS Luxembourg AIFM in Luxembourg

Transcription

1 CMS Luxembourg AIFM in Luxembourg

2 Scope of the AIFM law Contents 1. Source of Law ESMA and CSSF Guidelines 2. Definition of an AIF 3. Applicability to regulated investment vehicles 4. and to unregulated vehicles 5. Derogations under the AIFM Law 6. Exemptions under the AIFM Law 7. Practical cases 8. Summary

3 Sources of law ESMA and CSSF Guidelines EU AIFM Directive 2011/61 (8 June 2011) EU Regulation 231/2013 (19 December 2012) AIFM EU Directive : implementation in the Luxembourg legislation by the law of 12 July 2013 on alternative investment fund managers (The «AIFM Law») - Entry into force of the AIFM Law:15 July 2013 ESMA final reports on guidelines on key concepts CSSF circular 14/581 on reporting obligations CSSF Guidelines (FAQ 4 January 2014)

4 Definition of an AIF An alternative investment fund (AIF) is constituted by 4 cumulative elements. Article 1 (39) (a) of the AIFM Law: «collective investment undertakings, including investment compartments thereof which raise capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors ; and do not qualify as UCITS.» Point 1.a of the CSSF Guidelines: «It is the responsability of the management body of any collective investment vehicle to selfassess if it has to be considered as an AIFM under the AIFM law or not.»

5 Definition of an AIF (i) «collective investment undertakings» This concept is neither defined in the EU AIFM Directive nor in the AIFM Law. Its purpose is to pool assets from investors in order to generate a return by acquiring, holding or selling assets and where the investors do not have access to the daily discretion or the control over the management of the assets of the undertaking. Hence, it does not restrict the definition of an AIF to a regulated collective investment scheme subject to the prudential supervision of the CSSF. However it excludes ordinary companies with general commercial or industrial purpose.

6 Definition of an AIF (ii) «raise capital» Direct or indirect steps to procure the transfer or commitment of capital by one or more investors to an undertaking for the purpose of investment with a view to generating a pooled return for the investors; and/or commercial communication between the undertaking seeking capital or a person or entity acting on its behalf and the prospective investors, which results in the transfer of capital. Raising capital has various forms: a single transfer or multiple transfer (including contribution in kind). F.O. exemption: No raising of capital if the exclusive purpose of the undertaking is the investment of private wealth of a pre-existing group.

7 Definition of an AIF (iii) «a number of investors» An undertaking could not qualify as an AIF if it has a single investor. However the constitutive documents must clearly mention that the undertaking has a sole investor/shareholder. Recommendation: amending the constitutive documents in order to secure this issue. If the undertaking has a sole investor who has raised funds from multiple entities, it will be still regarded as «a number of investors» - applicable to fund of funds, nominee arrangement, feeder structures etc.

8 Definition of an AIF (iv) «a defined investment policy» (1/3) Means how the pooled capital will be managed in order to generate a pooled return in favour of the investors. CSSF Guidelines reflect the ESMA Guidelines (ESMA/2013/611) to define the concept of «defined investment policy». Factors that would solely or cumulatively tend to indicate the existence of such a policy: The investment policy is fixed at the latest by the time that investor s commitments to the undertaking become binding on them;

9 Definition of an AIF (iv) «a defined investment policy» (2/3) The investment policy is set out in a document which becomes part of, or is referenced in, the rules or instruments of incorporation of the undertaking; The undertaking or the legal person managing the undertaking has an obligation to investors, which is legally enforceable by them, to follow the investment policy; The investment policy specifies investment guidelines with reference to criteria including any or all of the following: Invest in some categories of assets

10 Definition of an AIF (iv) «a defined investment policy» (3/3) Restriction on asset allocation Invest in particular geographical regions Restrictions on leverage Minimum holding periods Provide risk diversification Articles of incorporation or management regulations might be defined as a «defined investment policy».

11 Applicability to regulated investment vehicles Investment Vehicle UCI Part II Status under AIFM Law Always qualify as AIF Securitisation Vehicle Excluded upon conditions SIF AIF test & Derogation / Exemptions SICAR AIF test & Derogation / Exemptions UCITS are explicitly excluded from the scope of the AIFM Law.

12 .and to unregulated vehicles «Does the concept of AIF cover only regulated entities? No. The concept of AIF covers AIFs established in Luxembourg, in another EU Member State or in a third country irrespective of whether such AIF is a regulated or a non-regulated entity. [ ] any entity not regulated under the law of 2010, the law of 2007 or the law of 2004 that also meets the criteria of article 1(39) of the law of 2013.» (Point 1.b) CSSF Guidelines v.4). CSSF has confirmed that unregulated entities could qualify as AIF if they meet the AIF test. Hence, a SOPARFI, a IP Holding, a SPF, etc. might qualify as AIF and therefore would fall under the scope of the AIFM Law. The body vested with management must therefore conduct a self-assessment.

13 Derogations under the AIFM Law Limited number of exemptions to the AIFM Law: Holdings Securitisation Special Purpose Vehicles Central banks Pension funds Supranational institution Etc.

14 Derogations under the AIFM Law Focus on Holdings (1/2) Definition: company with shareholdings in one or more companies, the commercial purpose of which is to carry out a business strategy or strategies through its subsidiaries, asssociated companies or participations to contribute to long-term values and which is a company that is: or ; operating on its own account and whose shares are admitted to trading on a regulated market in the EU not established for the main purpose of generating returns for its investors by means of divestments of its subsidiairies or associated companies as evidenced in its annual report or other official documents.

15 Derogations under the AIFM Law Focus on Holdings (2/2) A holding is a separate legal entity which carries out its business through the holding of equity shares of other companies without seeking to dispose of such shares for generating profits but to create long-term values by conducting commercial or industrial projects (business strategies). The holding is always acting for its own benefit and not for third parties. The concept of «Holding» is therefore divergent from the concept already defined under EU or domestic law. How to define long-term values? What is the status of Joint Ventures? (i) Not defined under the AIFM Law (ii) The AIFM test must therefore be performed

16 Derogations under the AIFM Law Focus on Securitisation SPV Law of 22 March 2004 on securitisation Ad hoc Securitisation SPVs are out of scope under the AIFM due to the Article 2 (2) g provided that they meet the definition of the ECB 24/2009 Point 19 of the CSSF Guidelines: Exclusive object to perform securitisation deals True sale transaction(s) Synthetic transactions limited to credit/loans Issuance of CLOs or debt instruments only Uncertainties when: The securitisation SPV is the first lender Synthetic transaction on non credit related assets Securitisation SPV could be therefore unregulated and out of scope of the AIFM law Exclusion Art. 2(2) G of AIFM Law Securitisation Vehicle Regulated Art. 19 Unregulated

17 Exemptions under the AIFM Law (1/2) Exemption in full vs partial exemption Art 3(1) : Intragroup exemption When the AIFM manages AIF(s) where the only investors are the AIFM and/or the subsidiaries and/or parent companies of the AIFM or other companies of the same group. Parent Company AIFM SPV Group Company PM / RM Agreement AIF

18 Exemptions under the AIFM Law (2/2) Exemption in full vs partial exemption Art 3(2) : De minimis exemption (2 categories) (i) Managers in Luxembourg that manage AUM in excess of EUR 100 Mio (ii) Managers in Luxembourg that manage AUM in excess of EUR 500 Mio without leverage and redemption rights during the first 5 years Complex calculation of thresholds: it include alls AIFs under AIFM management (directly or not, delegated or not, etc.) with exceptions. Partial exemption means mandatory registration with the CSSF and regular reporting obligations.

19 Legal consequences (1/2) If the self-assessment is positive: (i) The governing body of the AIF must determine the AIFM: - AIFM is in charge of the PM or the RM - Could be external (delegation) - Could be internal (BOD, BOM, GP) self-managed (ii) The governing body must undertake the appropriate regulatory process: - Registration with the CSSF (if partial exemption) or - Full authorisation process with the CSSF Deadline: 22 July 2014!

20 Legal consequences (2/2) If the self-assessment is negative: Recommendations: 1. Documenting the self-assessment; 2. Regular review of the structure; 3. Anticipating the potential consequences if the client intends to change the features of the investement vehicle (timing, associated costs, etc.).

21 Practical cases (1) Sole shareholder SOPARFI (Sàrl) Participations

22 Practical cases (2) Shareholder 1 Shareholder 2 Shareholder 3 Cash Cash CIK G.P. SOPARFI (SCA) EUR 60 Mio Participations CIK = Contribution in Kind

23 Practical cases (3) Parent Company Group Company SPV Group Company SOPARFI (SA) EUR 135 Mio

24 Practical cases (3) Sisters of the father Father SPV Children SOPARFI (SA) EUR 35 Mio

25 Summary Unregulated Regulated UCITS SOPARFI, SPF & Securitisation SPV AIF Non-AIF Part I SIF Part I SICAR AIF Part II SIF Part II SICAR Part II UCI + De minimis regime AIF

26 Contact details Investment Funds Team Vivian Walry Partner Cédric Buisine Senior Associate French English German French English T T F F E vivian.walry@cms-dblux.com E cedric.buisine@cms-dblux.com