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Tomorrow’s WorldAsia Pacific Real Estate Asia Pacific Real Estate Conference 20136 December 2013

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The Alternative Investment Fund Managers Directive (AIFMD)Kenneth IekAmaury EvrardAmaury EvrardBart Kruijssen

AgendaAgenda

AIFMD, the lay of the land in Europe

AIFMD, the basics

AIFMD, how should Asian asset managers prepare for marketing in Europe ?

Q i k i f th l ti i l di fi i l t ti t Quick overview of other regulations, including financial transaction tax and European Market Infrastructure Regulation and how these would impact the (Asian) RE industry

PwC Asia Pacific Real Estate Conference 2013 | Singapore 3

Introduction & the lay of the land in EuropeIntroduction & the lay of the land in Europe

• Direct regulation of managersI di l i f Wh t d it • Indirect regulation of funds/structures

• Indirect regulation of depositary

What does it regulate?

g p y

I t f di t ib ti i t th E U i• Impact of distribution into the European Union

• Impact for non-EU managers

f l b l• Impact for global groups

• Current market moves


Definitions & the basicsDefinitions & the basics

AIF AIFM• All UCIs (i.e. open & closed, self-managed

or not, listed or not): - raising capital from a number of

investors

• AIFM means any legal person whose regular business is “managing” one or more AIF.

• Recognition of internally-managed AIF.Exempted AIFM:

- investing it in accordance with a defined investment policy

- for the benefit of the investorswhich do not require authorisation pursuant

Exempted AIFM:• AIFM managing AIFs with less than

EUR 100 million of AuM with leverage.• AIFM managing AIFs with less than

EUR 500 million of AuM with no leverage which do not require authorisation pursuant to the UCITS Directive.

• Specific exclusions (e.g. holding companies, securitisation special purpose vehicles,

i f d )

EUR 500 million of AuM, with no leverage and which do not grant investors redemption rights during a period of 5 years following the date of initial investment in each AIF.Exempted AIFM must:pension funds etc.). • Exempted AIFM must:- register with the competent authorities;

and- comply with reporting requirements to

enable the competent authorities to enable the competent authorities to effectively monitor systemic risk.

• Exempted AIFM do not benefit from any of the rights granted under the AIFMD, unless the AIFM chooses to opt in

PwC Asia Pacific Real Estate Conference 2013 | Singapore

the AIFM chooses to opt-in.

5

AIFMD Timeline AIFMD Timeline

Date EU AIFM/AIFs

Non-EU AIFMEU AIFs

Non-EU AIFMNon-EU AIFs

J l T t lli i t t i t July 2013

Full

Transparency + controlling interest requirements Existence of cooperation agreements.

Access to EU via National Private Placement Regimes (NPPR)

July Dual Regime:complianceAccess to EU Passport for

EU AIFs

July 2015

Full compliance +

3rd country provisions+

Dual Regime:Access to passport (fully compliance)or continued NPPR

Lik l t i ti f NPPREU AIFs only.

Non EU AIF = NPPR

Access to EU passport Likely termination of NPPRs

Full compliance +

3rd country provisions

2018-2019 y p

+Access to EU Passport


AIFMD Legislative Timeline AIFMD Legislative Timeline • Deadline for

transposition into national law Final ESMA advice

Level 1 Entry

• Passport introduction for EU AIFMs managing EU AIFs (21 July)

submitted to the EC(16 November) Level 2 measures

by EU Commission Deadline

into Force(21 July)

authorization for existing AIFMs

T d

Jul 11 Jul 13Nov 11 Nov 12 Dec 12Aug 12 Jul 14

Today

Transposition of regulation into national law

Further steps

• July 2015: ESMA opinion on implementation of the passport regime for non-EU funds and managers

• October 2015: EU passport available to non-EU AIFMs

• October 2018: ESMA opinion on withdrawal of national PPRs

• January 2019: Withdrawal of national PPRs following receipt of ESMA’s positive opinion


receipt of ESMA s positive opinion

7

AIFMD Legal FrameworkAIFMD Legal Framework

EU LuxembourgEU Luxembourg

Framework legislation

• Directive 2011/61/EC on Alternative Investment Fund Managers (Level 1 measures) *

• Luxembourg Law of 12 July 2013 on alternative investment fund managers

I l i C i i D l t d R l ti (EU) N / (L l )Implementing measures

• Commission Delegated Regulation (EU) No.231/2013 (Level 2 measures)• Commission Implementing Regulation (EU) No 447/2013• Commission Implementing Regulation (EU) No 448/2013

Guidance ESMA Final Report CSSF Press ReleaseGuidance p• Guidelines on sound remuneration

policies under the AIFMD (Feb 2013)• Guidelines on key concepts of the AIFMD

(May 2013)

• 13/23 - CSSF sign 34 MOU with third-country counterparts (on 31 May 2013)

• 13/25 - AIFMD guidance (on 18 Jun 2013)• 13/31 - Publication of the AIFM Law (on

• Guidelines on reporting obligations under Article 3 and Article 24 of the AIFMD (Oct 2013)

ESMA Consultation PaperD f l h i l d d

18 Jul 2013)• 13/32 - Practical guidance in relation to the

registration or authorisation under the AIFM Law of AIFM established in Luxembourg (on 18 Jul 2013)• Draft regulatory technical standards on

types of AIFMs (Dec 2012)Not yet issued by ESMA• Letter box entity

18 Jul 2013)• 13/42 - Publication by ESMA of the “Guidelines

on the reporting obligations for AIFMS” (on 8 Oct 2013)


* European Commission issued Q&A in March 2013

8

Scope passport and marketing provisions Scope, passport and marketing provisions

AIFM AIF Investors In Scope Marketing in EU

EU EU EU YES Passport with full compliance

EU EU Non EU YES Passport N/A ith full complianceEU EU Non-EU YES Passport N/A with full compliance

EU Non-EU EU YES Nat. Private Placement Reg. (2013-2018)Possible passport (2015)

Nat Private Placement Reg (2013-2018)Non-EU EU EU YES

Nat. Private Placement Reg. (2013-2018)Full compliance + 3rd country provisions in 2015

Possible passport (2015)

Non-EU Non-EU EU YES Nat. Private Placement Reg. (2013-2018)Non EU Non EU EU YES Possible passport (2015)

Non-EU EU Non-EU YESNat. Private Placement Reg. but full compliance +

3rd country provisions from 2015from 2015

EU Non-EU Non-EU YES N/A

Non-EU Non-EU Non-EU NO N/A


AIFMD Non EU AIFM: In scope?AIFMD - Non-EU AIFM: In scope?

Scenarios In Scope?

An non-EU AIFM manages AIFs with EU investors and will continue to actively market

Yes. As from 2013, limited number of requirements will be applicable (see investors and will continue to actively market

the AIFs in the EU after July 2013.requirements will be applicable. (see following slides).

An non-EU AIFM manages a non-EU AIFs with EU investors but will not actively market the

No. None of the AIFMD requirements are applicable.U vesto s but w ot act ve y a et t e

AIFs in the EU after July 2013.app cab e.

An non-EU AIFM manages EU AIFs but will not actively market the AIFs in the EU after

Yes, but only as from 2015. As from July 2015, the non-EU AIFM will need to fully

July 2013. comply with the Directive regardless of marketing activities.

Marketing: A direct or indirect offering or placement at the initiative of the AIFM or on behalf of the AIFM of units or shares of an AIF it manages to or with investors domiciled or with a of the AIFM of units or shares of an AIF it manages to or with investors domiciled or with a registered office in the European Union.

Based on this definition, reverse solicitation would not be considered “marketing”. The difficultly will reside on what constitutes reverse solicitation and the interpretation of each


difficultly will reside on what constitutes reverse solicitation and the interpretation of each national regulator!!!

10

Key Considerations for AIFMKey Considerations for AIFMKey functions

Board of Directors(min 3: experienced and reputable)

Conducting Officers(min 2: experienced and reputable, located in

Luxembourg)

Compliance Risk Management

Internal Audit IT FinanceOperations

Asset Management DistributionCentral

administrationManagement administration

Service id

Service id

Service id


provider provider provider

11

The impact of AIFMD permeates all aspects of the The impact of AIFMD permeates all aspects of the asset management business

Liquidity Liquidity Management

Li i

Transparency3rd Country Provisions

Front Office

Compliance and Legal

Duty of

LicensingMarketing/ Passporting

Your firm

OperationsAccounting

and Finance

Remuneration

CareLeverage

Marketing

Finance

Conflict of Interest

Depositories

Delegation

Risk Management

Delegation

Valuation Internal ManagementControl

12PwC Asia Pacific Real Estate Conference 2013 | Singapore

AIFMD Key Considerations applicable to Non EU AIFMD - Key Considerations applicable to Non-EU AIFMs as from 2013

Requirement DescriptionTransparency • Annual report: US GAAP allowed. Prescribed report on activity.

Disclosure on remuneration of staff of the AIFMDisclosure on remuneration of staff of the AIFM.• Reporting to investors: May require some adaptation. (disclosures

of side letters, leverage, risk management etc.).• Reporting to authorities: New! Quarterly or semi annually. p g Q y y

Extensive quantitative information (portfolio, investors) and risk management related. Similar to form PF but different!!!

Controlling • Notification duties and disclosure requirements in case of major Interest holdings and control of non-listed companies (regulators,

non-listed company, shareholders, employees).• Specific disclosures in the annual report of AIF.

i i i ( h f ll i i i i )• Anti asset stripping (24 months following acquisition).

Depositary functions

• Non-EU AIF managed by EU AIFMs = one or more entities must be responsible to carry out safekeeping, cash monitoring and

i ht d ti C t b th AIFM


oversight duties. Cannot be the AIFM.

13

AIFMD Key Considerations Third Country AIFMD - Key Considerations - Third Country Provisions

Dates Requirements

2013Marketing via

• Compliance with transparency and controlling interest requirements +• Cooperation agreements between regulator of non EU AIFM and Marketing via

NPPR• Cooperation agreements between regulator of non-EU AIFM and

non-EU AIFs and regulators of each member state where AIFs is marketed.

2015 or 2018 • Full compliance with Directive +5Marketing via EU passport

p• Additional cooperation agreements.• Tax agreements.• Member state of reference (MSR) - One EU regulator will become

regulator of the non-EU AIFM.• Legal Representative.

2015 or 2018D it

• Non-EU AIFs: Depositary must be in the jurisdiction of the AIF or the EU AIFM th MSR f EU AIFMDepositary EU AIFM or the MSR of non-EU AIFM.

• Depositary subject to authorization and on going supervision.• Laws, capital requirements, operating conditions, duties, enforcement

actions to the same effect as those in EU.


actions to the same effect as those in EU.

14

AIFMD Key Considerations Applicable to AIFMD - Key Considerations - Applicable to non-EU delegates of EU AIFMs

Consideration Requirements - Delegation to non EU entityDelegation of portfolio or risk

• Non-EU delegate must be authorized or registered for the purpose of asset management and subject to supervision.p

management.g j p

• Cooperation agreement between competent authorities of the non-EU delegate and competent authorities of the EU AIFM is in place.

Remuneration

For key features of AIFMD

As a delegate to an EU AIFM, the entity must be: • subject to regulatory requirements on remuneration that are equally

as effective as those applicable under the AIFMD; or• subject to the remuneration requirements of the AIFMD through

remuneration requirements, see page 13.

• subject to the remuneration requirements of the AIFMD through appropriate contractual arrangements.

The remuneration requirements will not necessary impact the entire firm of non-EU entity but will impact the compensation of those “identified of non EU entity but will impact the compensation of those identified staff” (as defined by ESMA Guidelines) performing portfolio or risk management activities on behalf of the EU AIFM.


Non EU delegate of EU AIFMNon-EU delegate of EU AIFM

EU AIFEU AIFM Key Considerations• Singapore Asset Manager must

be authorized for asset management.

• Cooperation agreement between, for example CSSF and MAS.

• Singapore Asset Manager submitsg p gremuneration principle to EU AIFM, similar to the principleforeseen in AIFMD.

EU investorsSingapore

asset manager


EU Distribution under AIFMD from 2013EU Distribution under AIFMD from 2013

Non-EU AIFM marketing non-EU AIF in the EU

Cayman not on FATF blacklist

Non-EU AIFNon-EU AIFMCooperation agreements btw Cayman and each EU country

where AIF is marketed

Cooperation agreements btw Singapore and each EU country

Singapore not on FATF blacklistNat. Private Placement Reg. from 2013 to 2018

Marketing to professional investors and retail investors continues to be subject to

Non-EU AIFM must comply with transparency

Singapore and each EU country where AIF is marketed

Reg. from 2013 to 2018

continues to be subject to domestic (private placement) rules

comply with transparency and controlling interest provisions of Directive, if applicable

EU investors


EU Distribution under AIFMD from 2015EU Distribution under AIFMD from 2015

Non-EU AIFM marketing non-EU AIF in the EUC i b Si d MSRCooperation agreement btw Singapore and MSRCooperation agreement btw Cayman and MSR

Cayman not on FATF blacklist

Non EU AIFNon EU AIFM Tax Agreements btw Cayman and each

MSR Legal Rep.

Non-EU AIFNon-EU AIFM Tax Agreements btw Cayman and each EU country where AIF is marketed and

btw Cayman and MSRSingapore not on FATF blacklist

bDepositary of AIF must be located in

EU Passport as from 2015Singapore AIFM must

Tax Agreements btw Singapore and MSR

p yCayman or Singapore or MSR

Marketing to professional investors (MiFID) via EU Passport

Marketing to retail investors continues to EU investors

generally fully comply with AIFMD


gbe subject to domestic (private placement) rules

18

Countries PP UCITS PP AIF

Before After Before After Before 22 July 2013

After 22 July 2013

Before 22 July 2013

After 22 July 2014

CloseE d d ?

FranceEnded ?

Open Ended

Germany

Italy ?

UKUK

Switzerland


ContactsContacts

Kenneth IekAssurance [email protected]

Bart KruijssenTax [email protected]

+ 352-494848-2278

Amaury Evrard

j p+31 887926037

Amaury EvrardLuxembourg RE&I [email protected]+ 352-494848-2106+ 352 494848 2106

AppendixAppendix


AIFMD Key Considerations Applicable as from

Appendix

AIFMD - Key Considerations - Applicable as from 2015 or 2018 to non-EU AIFMs

Consideration Strategic Impacts

Scope Smaller manager exemptions:• Thresholds: EUR 100/EUR 500 million - gross assets + derivative converted/ 5 g• Limited grandfathering clauses.

Activities • Mandatory = Portfolio and Risk Management of AIFs.• Authorized = Administrative functions in relation to AIFs.• By derogation = non-core activities: Mandates/Separate Accounts,

Investment Advice, and other limited MiFID activities.

Capital Requirements

• Initial capital: EUR 125,000.Additi l f d b f A M EUR illi f Requirements • Additional own funds: + 2bps of AuM > EUR 250 million, cap of EUR 10 million or ¼ of operating costs (no cap).

• Professional indemnity: insurance or 1bps of AuM.

Delegation Extent of delegation of portfolio management and/or risk management will be Delegation Extent of delegation of portfolio management and/or risk management will be restricted. (“substantial margin”)Suitability and eligibility of delegates.

Management/AIF P t

Access to EU professional investorsC b d t


AIF Passport Cross border management

22


Appendix


Consideration Operational Impacts

Risk Management

• Permanent, functionally and hierarchically separated from portfolio managementManagement portfolio management.

• Adapted to risk profile of the AIF.• Risks: identification, limits, measurement, monitoring (market,

credit, liquidity, counterparty, operational)., q y, p y, p )• Periodical reviews, stress tests, back-testing, scenario analysis.• Extent of delegation as RM is a core function.

Liquidity • Alignment of strategy, liquidity profile and redemption policy.Liquidity Management

Alignment of strategy, liquidity profile and redemption policy.• Liquidity limits and stress tests (normal and exceptional

conditions).• Look through basis for fund of funds.g

Leverage • Maximum level (reasonable) + disclosure of actual level.• Substantive leverage = 3 x nav (additional disclosure).• Gross and commitment methods.


Gross and commitment methods.

23


Appendix



Valuation • Appointment of internal or external valuer(s).• If internal: functionally separated from PM• If internal: functionally separated from PM.• External valuer liable to AIFM.• AIFM remains liable to AIF and investors.

C fli t f Id tif t it d di lConflicts of Interest

• Identify, prevent, manage, monitor and disclose.

Remuneration • Senior management, control functions and risk takers.Fi d d i bl t t b b l d• Fixed and variable components must be balanced.

• Variable = 50% consists of units of AIFs or equivalent.• Variable = 40%/60% deferred (at least 5 years).

G t d b ti l d li it d t 1 t • Guaranteed bonus exceptional and limited to 1st year.• Performance based remuneration: combination of individual and

overall results, assessed on a multi year frame work.



Appendix



Depositary • Each AIF must have a single depositary responsible for safekeeping of all assets of the AIF and responsible for cash safekeeping of all assets of the AIF and responsible for cash monitoring and oversight duties.

• Assets held in custody: Strict Liability.• Prime broker (acting as counterparty) cannot be the depositary ( g p y) p y

unless segregation brokerage/custody functions.

Service Providers

• Enhanced responsibilities of depositaries and external valuers (when relevant) will required new agreements and protocol for exchange of information.



Appendix


Consideration Strategic Impacts

Scope Smaller manager exemptions:• Thresholds: EUR 100/EUR 500 million - gross assets + derivative

converted.• Limited grandfathering clauses.

Activities • Mandatory = Portfolio and Risk Management of AIFs.A h i d Ad i i i f i i l i AIF• Authorized = Administrative functions in relation to AIFs.

• By derogation = non-core activities: Mandates/Separate Accounts, Investment Advice, and other limited MiFID activities.

Capital • Initial capital: EUR 125 000Capital Requirements

• Initial capital: EUR 125,000.• Additional own funds: + 2bps of AuM > EUR 250 million, cap of

EUR 10 million or ¼ of operating costs (no cap).• Professional indemnity: insurance or 1bps of AuM.

Delegation Extent of delegation of portfolio management and/or risk management will be restricted. (“substantial margin”)Suitability and eligibility of delegates.

Management/ Access to EU professional investors


Management/AIF Passport

Access to EU professional investorsCross border management

26


Appendix



Risk Management

• Permanent, functionally and hierarchically separated from portfolio managementManagement portfolio management.

• Adapted to risk profile of the AIF.• Risks: identification, limits, measurement, monitoring (market,

credit, liquidity, counterparty, operational)., q y, p y, p )• Periodical reviews, stress tests, back-testing, scenario analysis.• Extent of delegation as RM is a core function.

Liquidity • Alignment of strategy, liquidity profile and redemption policy.Liquidity Management

Alignment of strategy, liquidity profile and redemption policy.• Liquidity limits and stress tests (normal and exceptional

conditions).• Look through basis for fund of funds.g

Leverage • Maximum level (reasonable) + disclosure of actual level.• Substantive leverage = 3 x nav (additional disclosure).• Gross and commitment methods.


Gross and commitment methods.

27


Appendix



Valuation • Appointment of internal or external valuer(s).• If internal: functionally separated from PM• If internal: functionally separated from PM.• External valuer liable to AIFM.• AIFM remains liable to AIF and investors.

C fli t f Id tif t it d di lConflicts of Interest

• Identify, prevent, manage, monitor and disclose.

Remuneration • Senior management, control functions and risk takers.Fi d d i bl t t b b l d• Fixed and variable components must be balanced.

• Variable = 50% consists of units of AIFs or equivalent.• Variable = 40%/60% deferred (at least 5 years).

G t d b ti l d li it d t 1st• Guaranteed bonus exceptional and limited to 1st year.• Performance based remuneration: combination of individual and

overall results, assessed on a multi year frame work.



Appendix



Depositary • Each AIF must have a single depositary responsible for safekeeping of all assets of the AIF and responsible for cash safekeeping of all assets of the AIF and responsible for cash monitoring and oversight duties.

• Assets held in custody: Strict Liability.• Prime broker (acting as counterparty) cannot be the depositary ( g p y) p y

unless segregation brokerage/custody functions.

Service Providers

• Enhanced responsibilities of depositaries and external valuers (when relevant) will required new agreements and protocol for exchange of information.


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