The Luxembourg Fund Industry Barcelona, June 2017
1. About ALFI
About ALFI The Association of the Luxembourg Fund Industry (ALFI), founded in 1988 Non-for-profit organisation More than 1,400 members Representative body for the Luxembourg investment fund community: Luxembourg-domiciled investment funds Asset Managers and management companies Service Providers Associate members based in other jurisdictions 3
2. Key facts and figures
European fund industry UCITS & AIFs UCITS Country Total assets under management millions Market share in % Country Total assets under management millions Market share in % Luxembourg 3 906 027 26.4 Luxembourg 3 257 773 35.8 Ireland 2 204 913 14.9 Ireland 1 668 435 18.3 Germany 1 937 711 13.1 United Kingdom 1 152 554 12.6 France 1 880 168 12.7 France 859 593 9.4 United Kingdom 1 547 182 10.5 Switzerland 458 470 5.0 Netherlands 809 992 5.5 Germany 344 904 3.8 Switzerland 561 181 3.8 Sweden 299 423 3.3 Sweden 321 782 2.2 Italy 239 320 2.6 Italy 302 610 2.0 Spain 203 338 2.2 Denmark 281 273 1.9 Denmark 119 296 1.3 Others 1 042 326 7.0 Others 508 457 5.6 Total 14 795 165 100.0 Total 9 111 563 100.0 Figures as at March 31, 2017 Source: EFAMA 5
Luxembourg fund industry Global overview nr. of funds / fund units 16 000 14 000 12 000 10 000 8 000 6 000 4 000 2 000 0 EUR millions 4500 000 4000 000 3500 000 3000 000 2500 000 2000 000 1500 000 1000 000 500 000 0 Funds Fund units Net assets * from Dec 2014, data includes SICAR Figures as at March 31, 2017 Source: CSSF 6
A comprehensive ecosystem Stock exchange 6 613 share classes listed 69 Custodians Financial Sectors Prof. (PSF) 297 4139 funds 3 906 billion in AUM 14 000 jobs Distributors 1. Private Banks 2. Life Insurance 3. Platforms 391 Management Companies 152 Fund Administrators Auditors/ lawyers Regulator CSSF (including 3rd party ManCo) Source : CSSF / Stock Exchange Fund data as of March 31, 2017 7
Luxembourg fund industry 25 % Market shares (%) of promoters of Luxembourg domiciled funds by country of origin in terms of assets under in terms management of net assets 20 15 10 5 0 US GB DE CH IT FR BE NL LU DK Others Figures as at March 31, 2017 Source: CSSF 8
3. Regulatory framework
Distribution impact AIFMD compared to UCITS General Overview UCITS Transferable securities and liquid asset classes only Public distribution EU passport High level of regulation SIF (Specialized Inv. Fund) All asset classes Qualifying investors only EU passport if within scope of AIFMD Lower level of regulation AIFMD RAIF (Reserved Alternative Inv. Fund) All asset classes Qualifying investors only EU passport if within scope of AIFMD No CSSF approval, regulated via its manager UCI Part II All asset classes Public distribution EU passport if within scope of AIFMD Medium level of regulation SICAR Risk capital only Qualifying investors only EU passport if within scope of AIFMD Lower level of regulation Flexibility 10
UCITS Directive vs AIFMD Directive UCITS EU Directive AIFMD EU Directive Authorized AIFMs Regulates UCITS and their Management Companies UCITS Part 1 of Luxembourg UCI Law Transferable securities only Public distribution High level of regulation for both fund product and management companies EU Passport Primarily designed for Retail Investors UCI Part 2 of Luxembourg UCI Law All asset classes Public distribution Medium level of fund product regulation Diversification requirement Registered AIFMs Regulates Managers of AIFs (AIFMs) Luxembourg AIFM Law SIF Specialized Investment Fund Law All asset classes Qualifying investors only Medium level of fund product regulation Diversification requirement EU Passport Primarily designed for Professional Investors SIF Specialized Investment Fund Law RAIF: regulated via its manager, no product regulation No EU Passport SICAR Investment Company in Risk Capital Law Risk capital only Qualifying investors only Medium level of regulation No diversification requirement SICAR Investment Company in Risk Capital Law P r o d u c t R e g u l a t i o n 11
4. Cross border distribution
Evolution of cross-border fund distribution Number of cross-border registrations 100 000 CAGR over 10 years : 7,1% Number of cross-border funds CAGR over 10 years : 8,3% 11 732 11 222 12 000 90 000 80 000 8 511 9 436 9 869 10 430 10 000 70 000 7 366 7 441 7 907 8 000 60 000 6 525 50 000 40 000 4 529 4 875 5 170 5 907 6 000 30 000 4 000 20 000 2 000 10 000 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 0 Luxembourg Ireland UK France Jersey Other Number of true x-border funds Source: Lipper LIM & PwC analysis as at December 31, 2016 (Poster PwC March 2017) 13
Domicile share of authorisations for cross-border distribution in % United Kingdom (UK) Jersey (JE) France (FR) 2 3 3 64 % of all UCITS registered 64 % of all UCITS registered in at least 3 countries in at least 3 countries (including home state) (including home state) are Luxembourg funds are Luxembourg funds Ireland (IE) 24 Luxembourg (LU) 64 0 10 20 30 40 50 60 70 Source: Lipper LIM & PwC analysis as at December 31, 2016 (Poster PwC March 2017) 14
Luxembourg Ireland France Jersey United Kingdom Germany Other Total number of registrations as at Dec, 2015 Number of new registrations during 2015 % growth 2014-2015 Trend over 5 years Cross-border distribution Luxembourg market share of foreign cross-border funds registered for sale Spain : 64% Distribution Markets Fund Domiciles Spain 3583 1364 291 177 89 46 70 5620 508 9,94% Source: Lipper LIM & PwC analysis as at December 31, 2016 (Poster PwC March 2017) 15
Growth in cross border distribution By geographical areas Region of distribution Total registration as at Dec 2015 Total registration as at Dec 2016 New registrations in 2016 % growth 2015-2016 Europe 80 946 86 454 5 509 6,8% Asia Pacific 6 403 6 658 257 4% Americas 2 417 2 304-108 -4,7% Middle East 976 840-136 -13,9% Africa 285 292 7 2,5% Total 91 027 96 548 5 529 6,1% Source: Lipper LIM & PwC analysis as at December 31, 2016 (Poster PwC March 2017) 16
Initiators from Spain Country of Origin: Spain Country of Origin: Spain Inititator N of Funds Assets under Management (end of 2016 - $) 21 Gesprofit 3 53 422 704 $ 22 Value Tree 5 51 919 918 $ 1 Grupo Santander 35 3 539 683 784 $ 2 SIF Private Label 19 2 315 937 676 $ 3 Banco Bilbao Vizcaya Argentaria 39 2 166 376 206 $ 4 Caixabank 6 2 104 694 048 $ 5 Asesores y Gestores Financieros Fondos 97 1 463 292 405 $ 6 Banca March 12 1 421 890 628 $ 7 EDM Servicios Financieros 8 959 486 647 $ 8 Bankinter 9 800 583 240 $ 9 Adepa 32 673 081 760 $ 10 Abante Asesores Gestion 5 334 348 364 $ 11 Auriga Securities 6 309 860 519 $ 12 Bestinver Gestion 3 283 383 358 $ 13 Magallanes Value Investors 2 185 668 430 $ 14 Oquendo Capital 2 162 113 337 $ 15 Financiera Fimar 3 92 704 379 $ 16 Banco de Sabadell 7 92 391 820 $ 17 Merchbanc (Merchbolsa Agencia de Valores) 8 70 246 971 $ 18 MAPFRE Asset Management 4 64 651 461 $ 19 TREA Capital Partners 3 63 203 342 $ 20 Adara Venture Partners 23 Naropa Capital 1 47 140 779 $ 24 Magnum 1 40 794 701 $ 25 Arcano Group 3 39 567 918 $ 26 Banco de Madrid 2 38 550 921 $ 27 ABAC Capital 1 35 965 989 $ 28 Welzia Management 2 30 259 496 $ 29 Altex Partners 1 27 358 857 $ 30 Gawa Capital 2 27 284 373 $ 31 Caja Duero 3 24 738 087 $ 32 Omega Gestion de Inversiones 1 24 407 628 $ 33 Corpfin Capital 2 17 602 041 $ 34 Allfunds Bank 1 14 160 974 $ Total 330 17 638 052 132 $ During the course of 2017, several Spanish players launched (or are in the process of launching) Luxembourg-domiciled investment funds: - Renta 4 - Cobas Asset Management - Gesconsult - Ibercaja Gestión Source: Monterey Insight Luxembourg 2017 17
5. A word of tax...
A high level summary of the taxation of Luxembourg UCITS Investment Funds are subject to a subscription tax General rate (5 basis points) Reduced rates / exemptions (MMFs and index-trackers) No withholding tax on distribution of dividends Investors are taxed in their country of residence based on their respective national legislations 19
UCITS - Access to double tax treaties Access to double tax treaties: OCDE Unit Trusts (FCPs) = tax transparent Report on the Granting of Treaty Benefits With Respect to the Income of Collective Investment Vehicles (April 2010) Investment Companies (SICAVs/SICAFs) = in principle eligible to DTT benefits currently 49 out of 77 DTTs BEPS Action 6 20
Automatic Exchange of Information ( AEOI ) European Savings Directive FATCA CRS ( DAC2 ) AEOI since 1 January 2015 Only debt instruments Luxembourg early adopter Investment Funds are Reporting Financial Institutions When: 2017 on 2016 reportable income What: dividends, interest, gross sales proceeds and account balances 21
Investment Funds: an International Perspective ( ) tax neutrality means that taxpayers are treated the same whether they invest in assets, such as government securities and the shares of joint-stock companies, directly or indirectly through investment funds. Source: European Commission 22
6. The way forward...
The way forward - LPs - RAIF - Revised Company Law Legal toolbox BREXIT Ongoing regulatory agenda - MiFID II - PRIIPs - CMU - BEPS/ATAD - Growing middle class - Infrastructure needs - Alternative and passive on the rise - Pressure on margins - Pension funds deficits - Digitalisation Macro drivers affecting the asset management industry X-border distribution Diversification - Climate Finance... 24
Brexit - EU Next steps: Article 50 triggered on 29 th March 2017 Negotiations between UK and EU on the new trade model Find an agreement 25
Brexit - EU Developments European Council agrees on Negotiating Guidelines EU27 Heads of State and Government agree their position on Brexit negotiations on 29 April. Negotiating guidelines were in preparation for the past few months and were agreed unanimously by EU27. Negotiating Guidelines: People, money and Ireland Agreement on substance and process of discussion with phased approach EU27 leaders agreed that there must be sufficient progress on the UK s withdrawal on three issues before discussions begin on future relationship between the UK and the EU27: 1. rights of EU citizens living in the UK and vice versa, 2. UK financial obligations towards EU budget and 3. the border issue with Northern Ireland 26
Brexit - EU Developments - continued Negotiating Guidelines financial services: Paragraph 21 of negotiating guidelines: Any future framework should safeguard financial stability in the Union and respect its regulatory and supervisory regime and standards and their application. Appears to imply that market access comes with adherence to EU standards. Negotiating Guidelines - next steps: The European Commission (Michel Barnier, chief Brexit negotiator) is due to publish more detailed Directives on the basis of these Negotiating Guidelines. The European Commission s role as negotiator on behalf of the EU to be agreed. 27
Brexit - EU Developments - continued European Parliament European Parliament will publish resolutions on specific issues as negotiations develop; they may publish a resolution on citizens rights in coming months. European Parliament will make its voice heard about whether sufficient progress has been made on the withdrawal issues to allow discussions to progress to future relationship. 28
Cross-border Distribution of Funds in the EU CMU Action plan flagship project of the European Commission (2014-2019) for financial services Remove obstacles to cross-border distribution of investment funds inside EU Single Market Percentage of true cross-border funds increases over time 30% in 2016 compared to 18% only in 2005 UCITS and AIFMD Passports Theory vs Reality Room for improvement ( gold-plating, local marketing requirements, discriminatory tax treatment,...) 29
Identifying the obstacles EC Public consultation (Jun Sept 2016) to help identifying remaining barriers, such as: Lack of common interpretation/implementation of EU regulatory requirements Different levels of authorisation/notification fees Gold-plating, national administrative arrangements Differences in tax treatment of local and foreign funds Etc... 30
Tackling the barriers Examples of possible improvements recommended by EFAMA: Common understanding of Marketing and Pre-Marketing Single Information Portal managed by ESMA Pan-European tax reporting format for EU funds Etc... 31
Next steps EC communication to be published shortly Action plan expected to consist of a mix of legislative and nonlegislative tools: Targeted amendments to UCITS and AIFM L1 Directives (e.g. to prevent Member States from gold-plating ) ESMA Guidelines or Q&As (e.g. To clarify concept of Premarketing ) Industry support for the EC action plan will be key 32
ALFI Digital/FinTech Forum Digital/FinTech Forum Primary focus on Digital/Fintech developments which are believed to have a disruptive impact on the AM industry; meaning that the technology or development may bring along fundamental change to existing business models or processes in the AM industry Digital Investing Data Management & Securtiy Blockchain & Cryptocurrencies Equity Crowd Funding and P2P Lending 33
Regulatory Developments: How ALFI Can Assist MiFID II CRS PRIIPs DDQ AML/ KYC 34
ALFI Publications & Social Media YouTube & Vimeo 110 075 Views 221 Videos Twitter 3155 Followers 6884 Tweets LinkedIn 9098 Members FlickR 3392 Photos 95 Albums 28
Thank you Camille Thommes Director General camille.thommes@alfi.lu Marc-André Bechet Director Legal & Tax marc-andre.bechet@alfi.lu