Design_and_competitive_advantage - Claudio Dell'Era at HCDI seminar 30 April 2012
30 April Seminar
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Transcript of 30 April Seminar
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Copyright 2013 by K&L Gates LLP. All rights reserved.
Operations, Delegation and
Documentation
Preparing for AIFMD: Practical Tips, Part II
Sean Donovan-Smith - Partner
Alice Bell - Associate
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Overview
Recap
Operating principles for AIFMs
Organisational requirements and delegation
Regulatory capital requirements
Depositary and service provider documentation
Key disclosure requirements for AIF offering
materials
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Preparing for AIFMD: Some Practical Tips, Part I
A general round-up of key provisions in the AIFMD
level 2 implementing regulations (Level 2) Scope of the AIFMD
Timetable and transitional relief
Cross-border marketing
Delegation and letter-box entities
Enhanced disclosure and reporting requirements
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Operating principles: Section 1 General (Arts12-17)
General principles (Art 12)
Process and procedures (Arts 13-17): Policy
documents
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Operating principles: General principles (Art 12)
Act honestly, with due skill, care and diligence
Duty to act in best interests of AIF / investors, and the integrityof the market
Investments
Counterparty selection
Inducements, order-handling
Have and employ effectively resources and procedures that are
necessary for the proper performance of the AIFMs activities
Take all reasonable steps to avoid conflicts of interest Comply with all regulatory requirements to promote best
interests of AIF / investors, and the integrity of the market
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Process and procedures (Arts 13-17): Policydocuments
Remuneration (Art 13 and Annex II; ESMA
Guidelines)
Conflicts of Interest (Art 14, Articles 30-37 Level 2)
Risk Management (Art 15, Articles 38-45 Level 2)
Liquidity Management (Art 16, Articles 46-49 Level 2)
Investments in securitisations (Art 17)
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Organisational requirements: Section 2 (Arts18-21)
General (Art 18)
Valuation (Art 19)
Delegation (Art 20)
Depositary (Art 21)
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Organisational requirements: General (Art 18)
AIFM must use at all times, adequate and
appropriate human and technical resources that arenecessary for the proper management of AIFs
Administrative and accounting procedures
Electronic data processing controls Internal controls:
PA Account Dealing policies
All transactions documented (origin, parties, type, timeand place of execution)
Ensure that AIF assets are invested in accordance with
the AIFs investment policy and relevant rules
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Organisational requirements: Valuation (Art 19)
Articles 67-74 Level 2
AIFM must have written policies and procedures foreach AIF
For valuation models, must be approved by senior
management and be included in the AIFs policy AIFM must have written policies and procedures
explaining the methodology used for different types of
assets May use different methodologies for different AIF
Can differ within asset base to cover alternative
scenarios
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Organisational requirements: Delegation (Art20) AIFM core activities: portfolio management and risk
management If delegates interests may conflict, delegate needs to
functionally and hierarchically separate the performance
of the potentially conflicting tasks from the delegated
activities
AIFM must have the expertise and resources to review
delegate on an ongoing basis
AIFM loses AIFM status if it delegates the performance of
investment management functions to an extent that
exceeds by a substantial margin the investment
management functions of the AIFM itself
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Delegation Agreements
Article 75, Level 2
Delegation only effective by written contract Required terms:
Rights and obligations
Instruction and monitoring rights
Termination
Inspections and access
Sub-delegation only with AIFMs consent
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Depositary Agreement
Article 83, Level 2 at least:
Services Safe-keeping and oversight function
Validity and termination
Confidentiality
Delegation of safe-keeping
AML
Cash accounts in AIFs name
Notify if segregation of assets becomes insufficient to
protect from third party delegates insolvency
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Depositary Agreement
Required terms procedures:
Each type of asset Information exchange and quality checks
Amending documents
Escalation procedures in depositary group
Performance review
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Depositary Agreement
Discharging liability
Expressly transferred to third party in contractAIF/ AIFM must be able to bring claim against third
party for loss of financial instruments (or depositary on
their behalf) Contract between depositary and AIF/ AIFM to
expressly allow discharge and objective reason for
doing so
Contract disclaimer: liability not affected by
delegation of custodial duties unless properly
discharged
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Disclosure to Investors
Who?
AIFM What?
Each EU AIF managed
Each EU/ non-EU AIF marketed into EU
When?
Pre-investment
Material change
On-going
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Disclosure to Investors: Pre-investment
Investment strategy, objectives and restrictions
Leverage Risks
Type of assets
Procedure for changing strategy/ policy
Main legal implications of contractual relationship
Jurisdiction, governing law
Directory
AIFM, depositary, auditor & other service providers
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Disclosure to Investors: Pre-investment
Location of AIF
Master if feeder fund Underlying funds if FoF
How the AIFM covers professional liability risk
Own funds
Professional indemnity insurance
Delegation of AIFM functions
Valuation procedure
Pricing and methodology
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Disclosure to Investors: Pre-investment
Liquidity risk management
Redemption rights Fees, charges and expenses
How AIFM ensures fair treatment of investors
Preferential treatment (side letters)
Latest annual report
Procedure and conditions for issue/ sale of shares
Latest NAV
Historical performance of AIF (where available)
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Disclosure to Investors: Pre-investment
Prime brokerage arrangements
Sub-custody arrangements Any arrangements for depositary to transfer liability to
sub-custodian
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Disclosure to Investors: Ongoing Duties
Material changes
Change to depositary liability Periodically:
Percentage of AIFs illiquid assets subject to special
arrangements (e.g., side pockets) New liquidity management arrangements
Current risk profile and risk management systems
Leverage
Changes to maximum level (re-hypothecation,
guarantees)
Total amount of leverage
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Side Letters
AIFM must treat investors fairly
Preferential treatment must be disclosed in AIFsrules or instruments of incorporation
Cannot cause overall material disadvantage to other
investors Disclose to new investors prior to subscription
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Whats next?
Review the impact on your current operational
procedures Review offering materials
Undertake a gap analysis of relevant documentation
and processes Ensure that required documents are in place
Review, amend and/or prepare operational
procedures and policy documents Send updated information to existing investors, if
applicable
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Sean Donovan-Smith
Partner K&L Gates
0207 360 8202
klgates.com
Alice BellAssociate K&L Gates
0207 360 8304
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