Alternative Investment Funds in Europe Claude Kremer, Vice - - PowerPoint PPT Presentation

Title of Conference here

Alternative Investment Funds in Europe

Claude Kremer, Vice President, EFAMA

Chile, October 20th, 2010

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Contents

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AIFM DIRECTIVE 1. AIF – UCITS, NEWCITS

The future Newcits Comparison UCITS AIF

2. AIF DIRECTIVE

Key Dates Why AIFM? What is AIFM What does AIFMD regulate?

3. IMPACT

Passport / No Passport Delegation

AIFM DIRECTIVE 1. AIF – UCITS, NEWCITS

The future Newcits Comparison UCITS AIF

2. AIF DIRECTIVE

Key Dates Why AIFM? What is AIFM What does AIFMD regulate?

3. IMPACT

Passport / No Passport Delegation

4. CHALLENGES & OPORTUNITIES

Alternative Investment Groups Service Providers Investors

Alternative Investments Funds in Europe 1. Alternative UCITS 2. AIFM Directive 3. Third Countries 4. The future?

Chile, October 20th, 2010

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• 1. Alternative UCITS
• 2001-2007: extension of the scope of the eligible assets

for UCITS (money market instruments, financial derivatives, structured products and financial indices,…) increased interest of hedge fund asset managers for UCITS funds. Why?

Distribution – Passport Response to investor demand (regulation, protection, transparency, …) AIFMD effect

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What can be done by Alternative UCITS?

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UCITS Investment Possibilities

Short Positions through derivatives

√

Physical short selling

X

Long/short 130/30 Funds

√

Leverage

√

Absolute Return

√

Futures/Options

√

Hedge Fund Indices/Financial Indices

√

Repos and other derivatives used in efficient portfolio management

√

OTC Derivatives (Subject to criteria)

√

OTC Derivatives on commodity indices

√

Derivatives on commodities

X

UCITS I UCITS III Hedge Funds Long Equity/Bond

☺ ☺ ☺

Synthetic Equity/Bond

• ☺

☺

Long/Short*

• ☺

☺

Leverage**

• ☺

☺

Absolut Return

• ☺

☺

Rel Benchmark Return

☺ ☺ ☺

Alpha

☺ ☺ ☺

* Shorting strategy obtained via synthetic shorting using derivatives ** No absolute leverage limit for sophisticated UCITS using VAR, leverage limit 200% NAV applies for non-sophisticated UCITS Source : PrivewaterhouseCoopers

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• 2. AIFM Overview - Why did the AIFMD see the light?

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Chile, October 20th, 2010

Driving forces of AIFMD Credit crisis

Political will for additional regulation of AIF

• To address systemic risk
• To enhance investor protection
• To ensure all AIFM are subject to

regulatory framework

• To increase transparency
• To improve financial stability
• To develop an Alternative Investment

Single Market Establish common requirements governing the authorisation and supervision of AIFM in order to provide coherent approach to the related risks and their impact on investors and markets in the EU

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What is the AIFMD about?

• Direct regulation of Alternative Investment Fund Managers

(“AIFM”)

• Indirect regulation of Alternative Investment Funds (“AIF”)
• Creation of a European market for alternative investments via

AIFM Passport / AIF Passport

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Chile, October 20th, 2010

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What does the AIFMD regulate?

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Chile, October 20th, 2010

Authorisation requirement (identity of shareholders, program activity, information on AIF, information on delegation, etc.) Capital requirements Conduct of business rules, including remuneration Rules regarding conflicts

• f interest

Risk Management Marketing provisions

At the level of the AIFM

Valuation Depositary obligations Liquidity management Transparency requirements (annual report, disclosure to investors, reporting to authorities) Obligations regarding leveraged AIF Obligations regarding acquisition of controlling influence or significant interest Marketing provisions

At the level of the AIF

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Key dates: What has happened over the past 18 months? (1)

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Chile, October 20th, 2010

2 April 2009 G20 meeting in London states that « all systemically important financial institutions, markets and instruments should be subject to an appropriate degree of regulation and oversight. » 30 April 2009 EU Commission issue proposal for Alternative Investment Fund Managers Directive (« AIFMD ») May 2009 To May 2010 EU Council of Ministers Ecofin vote (18 May 2010) September 2009 EU Parliament’s Economic & Monetary Affairs Committee to (« ECON ») May 2010 ECON vote (17 May 2010) May 2010 to Autumn 2010 Trilogues under way, i.e. discussions between EU Commission, EU Parliament and EU Council to attempt to agree on a text for the AIFMD.

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AIFMD – Where are we now?

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Chile, October 20th, 2010

July 2010 Belgium has taken over the EU Presidency The EU Commission, EU Parliament and EU Council have been meeting regularly in the « Trilogue » discussions. October 2010 to December 2010 Possible Vote in European Parliament plenary session Thereafter Council of Ministers must vote after EP plenary vote, to adopt « common position » Early 2011? Legal and translation services prepare the legislation for publication

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• 3. AIFM Directive: Impact on Third Countries

Different cases are contemplated by AIFM directive

• EU AIFM managing

With distribution

• Non-EU AIFM managing

With distribution in the EU

Chile, October 20th, 2010

{ {

an EU AIF a Non-EU AIF in the EU

• utside EU

an EU AIF a Non-EU AIF

{

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Third countries: passport or no passport No fortress Europe Third country funds and managers will be entitled to benefit from passport subject to conditions (like EU funds and managers) Private placement regime will also be accessible during a transitional period, subject to conditions. Third countries will also be required to comply with AML procedure, to sign cooperation agreement and OECD Model Tax Convention.

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Delegation - UCITS approach

Shall the delegation of management tasks still be authorized? Delegation is in general permitted but subject to prior notification Delegation of portfolio and risk management in principle only to authorised or registered entities and subject to prior approval. In case of delegation of these tasks to third countries entities, cooperation between authorities must be ensured Sub delegation is permitted

Chile, October 20th, 2010

The Future

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• 4. The Future Alternative Investment Funds in Europe

What kind of structure for alternative investments? Alternative UCITS AIF

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Chile, October 20th, 2010

Thank you

Chile, October 20th, 2010