© 2012 Dechert LLP

AIFMD Countdown:Breakfast BriefingsOne year to go

Gus Black

Stuart Martin

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Agenda Today

1. Timetable and implementation

2. Key impact areas

3. Planning strategies

4. Questions

© 2012 Dechert LLP

AIFMD Countdown:

Timetable and implementation

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Timetable – Level 1

• Level 1: Primary Directive became EU law on 21 July 2011.

• Must be implemented by Member States by 22 July 2013.

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Timetable – Level 2

• ESMA issued technical advice to the Commission on 16 November 2011.

• Level 2: ‘regulations’ – publication delayed– Have ‘direct effect’

– Contain wide ranging implementing measures

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Timetable – Level 3

• Level 3 Committees comprise representatives of national regulators

• Level 3 Committees give advice, recommendations and guidance on development of Level 2 measures

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Timetable – Marketing

2011 2012 2013 2014 2015 2016 2017 2018

Directive in force (P)

EU AIF obtain passport

Non-EU AIF obtain passport?

No more private placements?

IF ESMA make positive recommendation, and requisite implementing legislation is passed

Timetable - FSA

• Discussion Paper earlier this year (DP12/1) – general concepts

• Consultation Paper expected towards end of this year

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Timetable – New FUND Sourcebook

To cover:

• AIFM of UK and non UK AIF

• UK managers of UK and non UK UCITS

• UK UCITS and non UCITS retail funds

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Timetable – Other FSA to-dos

• Refine concepts (e.g. “AIF”)

• New regulated activity of “managing AIF”?

• Amend other Sourcebooks; Listing Rules etc.

• Amend secondary legislation (e.g. financial promotion regime)

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Timetable – Authorisation

• FSA should accept applications “from Q2 2013”

• Existing EU managers: submit application by 22 July 2014.

• Interim compliance obligations are unclear.

• Best timing for new managers?

© 2012 Dechert LLP

AIFMD Countdown:

Key Impact Areas –Questions to Consider

A change in role?Pre AIFMD

• AIF legally responsible for fund operation

• manager responsible for investment management and promotion (MiFID)

Post AIFMD

• AIF's legal responsibilities remain

• But EU manager assumes more of an “operator” role

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Are you in scope?

• Do you manage AIFs?

• Is your business an AIFM?- risk management or portfolio management

• Can you rely on any exemptions?- de minimis exemptions?

- MIFID carve out via 3rd country AIFM or self-managed AIF?

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Authorisation

• For each fund consider:– Management and delegation structure

– Who (if anyone) is the AIFM?

– Marketing in EU?

• How possible is offshore or MiFID-only structuring?

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Authorisation (cont’d)

• Group planning:– should your current MiFID manager be the AIFM?

– should you create a new AIFM?

• When should you submit your application?

• Will additional regulatory capital be required?

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Risk and Liquidity Management

• Who will monitor?

• How will functional separation be ensured?

• Are my systems compliant?

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Valuation

• Will I value internally or externally?

• External: who will do it and at what cost

• Internal: how will I ensure functional separation?

• Are my systems and policies compliant?

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Other Operational / Compliance

• How will I deal with new requirements on:– conflicts?

– due diligence?

– inducements?

– execution, etc?

• What changes are required to compliance / internal audit function?

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Delegation

• What is my current delegation structure?

• Is it compliant? e.g.– “objectively justified”?

– sufficiently resourced and authorised?

– third countries?

• New relationship with administrator

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Marketing

• Will private placement still work for me after 2013? For which products?

• Do I see value in the passport on day one?

• Should I re-domicile funds onshore?

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Depositary

• Who will be depositary (where required)?

• Interaction with prime broker and trading arrangements?

• Impact on pricing?

• Should I re-domicile onshore funds offshore?

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Remuneration

• Which rules will apply to me?– Proportionality guidance awaited

• Will current arrangements be compliant?

• Are new arrangements future-proof?

• Will I need new compensation structures (e.g. RemCom)?

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Specific Issues

• Are any of my funds “significantly leveraged”?– guidance awaited, 3x NAV?

• Will the “asset stripping” rules affect me and how will I comply?

• Will rules on investment in securitisation provisions affect me?

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Transparency

• What will the impact on fund documents be?

• Interaction with existing investor reporting?

• Who will monitor compliance?

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© 2012 Dechert LLP

AIFMD Countdown:

Planning

House – stock-take

• Which entities are in my group?

• How are they capitalised and regulated?

• Interaction with investment decision making process?

• What is status of my portfolios? (AIF or not AIF?)

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House – group structure

• Group structure changes?

• New entities and authorisations?

• Will service provider contracts, employees, IP rights, software licences etc. be in the right place or easy to change?

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House – general risk

• Group risk and liability profile changes?

• Insurance update?

• Impact on group tax arrangements and planning?

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Counterparty – stock-take

• Who are my service providers? What do they do?

• Contract database?

• How will existing terms be impacted by new requirements?– Counterparty terms?

– Investment strategy and objectives?

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Counterparty – Planning

• Will I need new counterparties (e.g. depositary)?

• How do I manage the ‘paper blizzard’?

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Planning – Product

• Will funds need re-structuring?

• Process for documentation updates?

• How will new rules affect: – Fees?

– Product viability?

– Investor base?

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Product outcomes (cont)

• Will my strategy work in a platform that is outside the scope of AIFMD?– UCITS / Newcits?

– managed accounts?

• Dual fund ranges – EU and a second cheaper, better performing non EU range?

• Development of an AIFMD brand?

Planning – general

• Who is responsible?

• Are senior management onboard?

• Strategy for staying informed?

• “First mover advantage” or “wait and see”?

• Are different jurisdictions joined-up?

• Staffing needs?

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QUESTIONS?

Gus Black and Stuart MartinDechert LLP

gus.black@dechert.com stuart.martin@dechert.com