HEDGE FUNDS WORKSHOP - Alfi

alfi.lu

HEDGE FUNDS WORKSHOP - Alfi

HEDGE FUNDS WORKSHOP


Coffee Break


AGENDAI. Luxembourg hedge fundsII.Recent developmentsIII.Future developmentsIV.Luxembourg’s key value proposition4


I. Luxembourg hedge funds1. OptionsLegal regimesSpecialized investment fund(SIF)Investors Informed AllAlternative UCITSDistribution Private placement Passport in EUGlobal brandRegulation General requirements Detailed – e.g.:- Risk management- Investment restrictions- Management companyBasic structuresCommon fund (FCP)Investment company (SICAV)Oversight & control Management company Board & ultimately investorsManagement Management company Self-managed or management companyTaxable status Transparent Not tax transparent5


I. Luxembourg hedge funds2. Typical structuresSIF investment company Alternative UCITS investment company ** May also be self-managed – i.e. without a management company6


I. Luxembourg hedge funds3. Focus on current prime broker role/modelSIF:• Appointment of prime broker• Duties of the depositary• Counterparty risk limitations:→ Netting provisions→ 140% of SIF’s debt towards prime brokerUCITS:• Appointment of prime broker• Duties of the depositary• Counterparty risk limitations:→ Cash 20%→ OTC derivatives 5/10%→ Combined limit 20%7


II. Recent developments – Changes to SIF Law1. Regulatory approval before launch2. Cross investment between sub-funds3. Delegation:• Must not prevent the SIF from acting in best interests of investors• Appropriate qualifications and due diligence• Portfolio management to authorized asset manager or CSSFapproval8


II. Recent developments – Changes to SIF Law4. Risk management systems• Identify, measure, manage and monitor risks• Consistency with investment strategy and risk profile of SIF• Governance and organization of risk management function• Risk management processes5. Conflicts of interest:• Internal organizational structure & identification of potentialconflicts of interest• Conflicts of interest function• Conflicts of interest policy: prevention, controls, disclosure9


III. Future developments – AIFM DirectivePossible Scenario: SEC registered Investment Advisor with EU Investorsusing EU/Non EU fund products, with/without EU based ManagementCompanyMarketing of AIFs in the EU – passportKey provisionsImpacts2013: Private placement continues2015: Phasing in of passport for investment advisors which comply withthe AIFM Directive to market to EU professional investors:- Member States may permit marketing to public but can impose stricterconditions- No marketing with a passport unless OECD Model Article 26 complainttax conventions have been signed between:- US and all countries of distribution- Non-EU and all countries of distribution2018: Phasing out of private placement – no marketing to EU investorswithout a passport- AIF “brand”: a competitive advantage?- Some EU and non-EU investors will demand AIF “brand” products- Passport facilitates “wide” hedge fund distribution in EU- Lower regulation for non-EU funds / managers in transitional period- Need to talk to investors!10


III. Future developments – AIFM DirectivePossible Scenario: SEC registered Investment Advisor with EU Investorsusing EU/Non EU fund products, with/without EU based ManagementCompanyMarketing of AIFs in the EU – passportConsiderationsOptions- Requirements in terms of cooperation agreements may preventmarketing of Non-EU fund products even under private placement- Uncertainty on whether passport implemented for non-EU in 2015- Set up manager and funds in EU- Set up parallel onshore and offshore structures- Wait and hope11


III. Future developments – AIFM DirectivePossible Scenario: SEC registered Investment Advisor with EU Investorsusing EU/Non EU fund products, with/without EU based ManagementCompanyManagement of AIFs – passportKey provisions 2015:- Phasing in of passport for investment advisors which comply with theAIFM Directive to manage EU hedge funds- Supervision by Member State of reference2018:- Phasing out of right to manage EU hedge funds without AIFMDirective authorizationImpactsOptions- AIFM Directive management passport similar to UCITS managementpassport- To access passport, detailed AIFM Directive requirements to be metsimilar to UCITS management company- Review and optimize organizational model- A single AIFM for EU hedge funds and non-EU hedge funds- Set up single EU AIFM & management company to manage hedgefunds & UCITS12


III. Future developments – AIFM DirectivePossible Scenario: SEC registered Investment Advisor with EU Investorsusing EU/Non EU fund products, with/without EU based ManagementCompanyTransparencyKey provisionsImpactsEU disclosure requirements to be met:- Before investors invest- Ongoing & annual report- Reporting to regulators- To be complied with independently of whether AIFM Directivecompliant or not- Disclosures on remuneration and side letters13


III. Future developments – AIFM DirectivePossible Scenario: SEC registered Investment Advisor with EU Investorsusing EU/Non EU fund products, with/without EU based ManagementCompanyKey provisionsImpactsDelegationof AIFMfunctionsDepositary:- Objective reasons- Due diligence & monitoring- Portfolio management or risk management:authorized asset manager- More obligations- Delegation of safekeeping possible- Liability- Need regulated manager- Limits to delegation?- Alignment with SIF Law- Liability may limit strategies:- Geographical markets served- Counterparties and primebrokers- Asset reuseLeverage - Leverage: disclosures and reasonable limits - Competent authorities to imposelimits on leverage?14


III. Future developments – AIFM DirectiveFocus on prime broker (and new relationship with Depositary !!!!!)• Roles:→ Primarily financing or execution of transactions in financial instrumentsas counterparty→ May also provide clearing and settlement of trades, custodial services,securities lending, customized technology and operational supportfacilities, etc.• Terms must be set out in a written contract, covering possibility oftransfer and reuse of AIF assets, & depositary informed• Prime broker cannot be depositary unless functional andhierarchical separation of performance of depositary functions andtasks as prime broker• Disclosure to investors on prime broker identity, any materialarrangement, conflicts of interest, transfer and reuse of AIFassets, and any transfer of liability15


III. Future developments – other1. New LP Law• Industry standards• From AIFM Directive to Luxembourg based LP• Common LPs versus special LPs• Flexibility for determining AIFM2. Governance Developments16


IV.Luxembourg’s key value proposition17


Listening to investorsThank you!

More magazines by this user
Similar magazines