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Transcript of AIFMD Update Client Seminarloyensloeffwebsite.blob.core.windows.net/media/2864/...3.00pm Welcome...
AIFMD Update Client Seminar
14 March 2013
3.00pm Welcome
3.05pm Status Update
3.35pm Scope
4.05pm Break 20 minutes
4.25pm Organisational Considerations &
Operating Conditions
Programme
5.00pm Remuneration
5.15pm AIFMD Authorisation – getting ready
5.30pm Wrap-up & Q&A
6.00 pm Drinks
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Status Update
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Status Update
Key objective: Europe becomes a regulated funds ‘only’ market
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AIFM (in scope)
AIFMD+ authorisation (retail clients)
AIFMD authorisation (professional clients)
Maximum harmonisation
No passport!
Passport
EU parties from 2013
(save in relation to non EU funds)
Non EU parties may become
authorised in 2015* and must
ultimately be authorised in 2018*
* conditionally
Timeline
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3 years from Q3/Q4 2015
July
2011 December
2012
July
2013
July
2014
July
2015
Q3 /Q4
2015?
Q4
2018?
Transitional
period for
existing EU
AIFM
AIFM
Directive
becomes law
Level 2
measures
published
Deadline for
existing EU
AIFM to
submit
authorisation
applications
Deadline
for ESMA
opinion on
application
of passport
to non-EU
AIFs/AIFMs
Authorisation
/passporting
for non-EU
AIF/AIFM?
National
private
placement
regimes
terminated?
AIFM
Directive
effective (22
July) EU
NL Second Chamber adopts
implementation legislation
(Oct 2012), awaiting Novelle
on pension poolings structures
for adoption First Chamber
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Dutch developments to come:
• First Chamber adopting legislation
implementing AIFMD
• Draft implementation in secondary legislation
• Consultation draft Application Form
• Reporting Formats from DNB
• FAQ from AFM
Status Update
European Developments:
Venture Capital Regulation passed by EP 12
March 2013
To come:
• Publication final Level 2 following expiry of
period (19 March 2013) for EP scrutiny
• Final report on Guidelines on Key Concepts
• Potentially additional convergence tools from
ESMA (e.g. Q&A)
Scope
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Are you in scope - Recap
• Are you an AIFM?
• Legal person
• Regular business managing one or more AIFs
• AIF
• Collective investment
• Raise capital
• From a number of investors
• With a view to investing in accordance with defined investment policy
• Non-UCITs
• New: Consultation Paper on Key Concepts
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Are you in scope – Clarifications
• Raising Capital: Direct or indirect steps to procure transfer of commitment by one or more investors
• Disregarding:
• Members of governing bodies of undertaking or of legal person managing that undertaking
• Employees whose professional activities have a material impact on risk profile
• Member of a group of persons connected by close familial relationship that pre-dates the
establishment of the undertaking
• Number of investors:
• Unless binding legal provision prevents more than one investor - one investor is enough
• one fund investor is enough
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Are you in scope – Example - AIFs
Manager GP
Adviser/
Arranger
Carry LP
Co-invest
LP
AIF?
Likely AIFs
Fund A LP Fund B LP
Holding
investors
Feeder
AIF?
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Are you in scope – AuM - Example
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Fund A LP
AuM: €200M
Fund B LP
AuM: €200M
AIFM AIFM
AIFM
Fund B LP
AuM: €150
Mr X.
15%
• AuM test: 100 or 500M,
depending on leverage
and 5 year lock up
• Identify AIFS managed • Directly
• Indirectly through
“common
management or
control”
• By a substantive
direct or indirect
holding (NL: 10% or
more)
• Include leverage,
controlled structures,
derivatives
AUM:
• 550?
• 200/200/150?
• 200/350?
15% 55%
Organisational Considerations
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Organisational Considerations
• Designation AIFM taking into account permitted activities (Annex I functions and certain MiFID activities (to
the extent permitted in the Member State)) and delegation
• AIFMD authorisation in NL permits management of client-by-client mandates (subject to compliance in the
area of initial capital, organisational requirements and conduct of business rules)
• Statutory outsourcing of: cash monitoring, safe-keeping of assets and oversight (depositary function)
• Hierarchical and/or functional separation: risk, compliance, valuation (most of the time tailored around
proportionality)
• Where appropriate and proportionate in view of the nature, scale and complexity of the business:
permanent internal audit function and remuneration committee
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Organisation considerations
Core Services
Portfolio and risk management
Non-core or ancillary services
Administration
Services in relation to assets
Marketing (fundraising)
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Activities you are not permitted to perform
(out of the AIFMD compliant manager)
Any services other than core and non core services
and UCITS management; and
ONLY to the extent authorised by Member States:
• individual portfolio management (MiFID)
• safekeeping and administration
• investment advice (MiFID)
• brokerage (MiFID)
Functions of the AIFM manager.
Delegations relates to own functions! Anti-concentration elements
Organisational Considerations
Typical domestic structure
(manager on same shore as fund)
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Typical off shore structure
(investment advisor outside fund jurisdiction)
fund
LPs
ManCo
GP
ManCo = AIFM (provided
appointed by, or on behalf
of, the fund, art. 5 AIFMD)
fund LPs
ManCo/
GP
EU or
non-EU
advisor
(non-discretionary) advice to
ManCo or Fund disqualifies
as a core /ancillary service
ManCo/GP = AIFM provided
appointed by, or on behalf of,
the fund, art 5 AIFMD)
Organisational considerations
What your management organisation could look like:
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Non-executive Function Remuneration
Executive Board Committee
Portfolio Management Risk Management
Compliance Officer
Internal Audit Function
Valuation
Depositary
Depositary - Cash Monitoring
Any cash must be booked in accounts with a bank (central bank, EU credit institution, or a bank outside the
EU subject to prudential supervision). Direct access must be ascertained to information on cash accounts
(directly from the banks concerned)
Cash monitoring entails:
• ensure that all cash is booked in cash accounts held with banks
• daily reconciliation of cash flow movements (or at least each time when a cash movement occurs)
• appropriate procedures to monitor daily significant /inconsistent cash flows
• periodical review of procedures, incl. full annual review of reconciliation process
• on-going monitoring of outcome of reconciliation processes and actions taken as a result of discrepancies
or irregularities (notification of fund manager or supervisory authorities)
• check on consistency of own record of cash positions with records maintained by the fund manager
• receipt of information on subscriptions and ensure that subscription monies are booked on cash accounts
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Depositary - Custody
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In case of non-custody assets amongst
others by:
• direct access to sufficient & reliable information
including info from TP
• record keeping such that at any given time
comprehensive and up-to-date information on
assets (no ‘transfer’ without
information/documentation provided to
depositary)
• escalation procedure for detection of
anomalies/ discrepancies
• look through approach in case of legal/financial
structures controlled by the fund or its
manager, save in case of master-feeder
structures where another depositary is
involved
Custody assets:
• registration in depositary’s books within
segregated financial instruments accounts
• accurate record keeping and maintenance of
segregated accounts (in particular, record of
correspondence with financial instruments and
cash)
• regular reconciliations
• assessment of custody risks throughout
custody chain (notification of material risks to
fund manager)
• procedures to minimise loss or diminution (e.g.
fraud, poor registration)
• look through approach in case of delegation
Depositary - Oversight
Oversight function entails amongst others:
• sale, re-purchase, redemption, cancellation of shares/units in accordance with applicable law and fund
regulations
• valuation shares/units in accordance with applicable law and fund regulations (where external valuations
are made, the depositary shall verify if the external auditor’s appointment)
• carry-out instruction of the fund manager unless they are in conflict with applicable law and fund
regulations (investment restrictions, leverage limits)
• transactions involving fund assets and any consideration is remitted within usual time limits
• fund income is applied in accordance with applicable law and fund regulations
• risk assessment upon depositary’s appointment and regular update
• ex-post controls and verifications of transactions
• implementation of escalation procedures for irregularities
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Operating Requirements
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Operating Requirements - what may already be in place?
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AIFMD - Policies UCITS MiFID CRD III
Risk management policy x x
Best execution rules x
Recording of portfolio transactions x
Written policies for due diligence x
Strategy for exercise of voting rights x
Recording of subscription and redemption orders x
Remunaration policy x
Personal transaction policy x
Conflict of interest policy x
Valuation procedure x
Compliance and internal audit x x
Subscriptions & rectifications notified to investors in a durable medium x
Initial capital and own funds requirements
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Own funds ≥ Amount (€)
(a) Higher of:
(i) €125k + 0.02% AuM > €250m; and 275,000
(ii) ¼ of previous year fixed overhead;
plus 1,250,000
(b) Choice of:
(i) 0.01% of AuM (or 0.008%); or 100,00
(ii) PII excess + exclusions cover 200,00
Total own funds requirement 1,355,000
• Applies to the AIFM
• “Capital”: share capital, retained profit
• Initial capital requirement ≥ €125k (at authorisation)
• Own funds requirement (example: €1bn AUM)
Reporting Requirements
Applies to:
Reporting frequency:
Information to be provided for:
AIFMs managing AIFs with AuM above
the thresholds but < EUR 1 billion
Semi-annually
AIFMs managing AIFs with AuM above the thresholds but
< EUR 1 billion
AIFMs managing AIFs with AuM above
the thresholds but < EUR 1 billion
Quarterly
Each AIF whose AuM, >EUR 500 million
AIFMs managing AIFs with AuM > EUR
1 billion
Quarterly
Each EU AIF managed and each AIF marketed in the EU
AIFMs managing unleveraged AIFs that
invest in non-listed companies in order
to acquire control
Annually
Each unleveraged AIF which invests in non-listed
companies in order to acquire control
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Remuneration
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Remuneration Guidelines - Recap
• AIFM must have remuneration policy that applies to “Identified Staff”
- Board + supervisory board
- Senior management
- Control functions
- Risk takers (groups of people that materially impact risk)
- Employees in same remuneration bracket (if impact on risk)
• Remuneration Guidelines should promote sound and effective risk management, including by:
- Proportionality of variable to fixed remuneration
- Requirement that at least 50% of variable is paid “in kind”
- Deferral of at least 40% of variable remuneration (i.e. subject to vesting)
- Applies to all variable remuneration and carried interest
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Remuneration Guidelines – Clarifications
• Delegation - AIFM should ensure that Remuneration Guidelines apply to delegatees that perform risk
management or portfolio management
• Control functions (risk management & compliance, audit and similar (incl. CFO)) can receive variable
remuneration (carried interest) but:
• Not solely based on AIFM wide performance criteria
• Avoid compromising independence and conflicts
• Dividends to owners of AIFMD are not remuneration
• Carried interest/Co-invest: position unchanged:
• Carry: contributions back + clawback
• Co-invest: actual disbursement
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Remuneration Guidelines – Clarifications – Remuneration Committee
• Remuneration Committee is not necessary if:
• AuM €1,25bn or less and 50 employees or less in total; or
• AIFM is part of a banking-, insurance group, an investment group or a financial conglomerate that is
obliged to set up a remuneration committee subject to equivalent rules
• If you need one:
• Majority must be independent, incl. Chair
• Sufficient expertise
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AIFMD authorisation
Getting ready
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Licensing application – Documentation to be submitted
• Clear description of organisational structure (AO/IC), including a reference table for each statutory
conditions and the corresponding page number of the AO/IC where this condition is addressed
• An organisational chart of the manager (and its group) and the depositary (and its group)
• Investment strategy including the underlying funds
• Policy on personal transactions
• (Sub)delegation structures
• Valuation policy
• Conflict of interest policy
• Remuneration policy
• Auditor’s statement (certification of capital/own funds of the manager)
• Annexes in relation to the screening of officers and policy makers (geschiktheidmatrix,
betrouwbaarheidsformulieren, referentenformulieren)
The application form should be accompanied by a notification for for each fund managed (meldingsformulier
per beleggingsinstelling); templates of these shall become available on 22 May 2013 through Digitaal Loket
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Licensing application - AO/IC
AO/IC should cover (inter alia) the following policy issues:
• General provisions – calculations of AuM and Leverage;
• Organisational requirements (decision making procedures, business continuity, internal reporting,
accounting procedures, etc.);
• Best execution policy;
• Due Diligence policy;
• Liquidity management policy;
• Risk management policy;
• Additional own funds and professional liability insurance.
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License application
From 22 July 2013 – 21 July 2014, unless in case of a new activity in a Member State
AFM accepts applications from 22 May 2013 onwards through Digitaal Loket,
http://www.afm.nl/nl/professionals/afm-voor/aifm/aifm/vergunning-registratie/vergunning.aspx
Handling time AFM: 13 weeks (this term may be extended in case of additional requests for information)
Costs (currently): EUR 5,500 per application, EUR 1,000 per integrity screening of a beleidsbepaler (EUR 200
for screened individuals), EUR 1,500 per expertise screening of a dagelijks beleidsbepaler (EUR 200 for
screened individuals)
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Q & A
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AIFM Directive - update
Thank you!
Disclaimer
Although this presentation has been compiled with great care, Loyens & Loeff N.V. and all other entities, partnerships, persons
and practices trading under the name 'Loyens & Loeff', cannot accept any liability for the consequences of making use of this
issue without their cooperation. The information provided is intended as general information and cannot be regarded as advice.
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