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Alternative Investments Conference

www.pwc.lu

29 January 2014

PwC

Welcome Régis Malcourant PwC Luxembourg

PwC

Agenda

9:00 – 9:50 AIFMD – Lessons learned and strategic positioning post July 2014 9:50 – 10:30 Operating alternative funds in the current tax climate 10:30 – 10:45 Coffee break 10:45 – 11:30 AIFMD: New opportunities for the distribution of AIFs 11:30 – 12:15 EMIR and AIFMD: operational challenges for AIFs As from 12:15 Buffet lunch

PwC

Luxembourg as Alternative Investment Funds Domicile Myths or Realities? Régis Malcourant PwC Luxembourg

PwC

Myths or Realities

How important is the “institutionalization” of HF investors?

Which is the fastest growing Alternative Investment Funds domicile?

Which is the most successful Sophisticated Investment Vehicle in Europe?

Which is the largest Alternative UCITS domicile?

Luxembourg in the eyes of main HF service providers?

Luxembourg in the eyes of major HF managers?

PwC

Global Hedge Funds by Source of Capital

44% 40%

30% 22% 23% 20%

24%

23%

32%

29% 27 % 25%

15%

11% 15%

14% 16% 22%

9%

18% 11%

26% 25% 25%

8% 8% 12% 9% 9% 8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2004 2006 2008 2010 2011 2012

Individuals Fund of funds Pension funds Corporations & other Endowments & foundations

Institutional Investors

Institutional money represents now more than 55% of the Global source of capital (FoF excluded!)

PwC

40.1%

27 .7%

6.9%

3.3%

1 .3%

20.8%

29.8%

23.0%

4.4%

9.7% 11.4%

21.7%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Caymans Delaware BVI Ireland Luxembourg Others

2008 2009 2010 2011 2012

% of hedge funds assets by main country of domicile

Luxembourg posted the largest growth in term of relative weight of domiciled funds, from 1.3% in 2008 to 11.4% in 2012.

Global Alternative Investment Fund Domiciliation

Source: HFR

PwC

Sophisticated Investment Funds in Europe

1 ,317

1 ,815

2,119

2,507

2,7 96

3,023

3,153

1 ,028 1 ,115 1 ,174 1 ,217

1 ,420

1 ,664 1 ,776

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2007 2008 2009 2010 2011 2012 Aug-13

# of SIFs # of QIFs

117 131

154

214

239

277 288

109 94

113

153

182

204

225

0

50

100

150

200

250

300

350

2007 2008 2009 2010 2011 2012 Aug-13

SIF QIF

Number of sub-funds AuM in EUR bn

*SIFs estimated in August 2013 according to the av erage number of sub-funds by fund in 2012

Luxembourg SIF is the preferred sophisticated investment vehicle in Europe and the largest AUM collector

PwC

Alternative UCITS by domicile

Luxembourg, 49.4%

France, 14.4%

Ireland, 13.2%

Spain, 5.2%

Germany, 4.5%

UK, 4.4%

Others, 9.0%

In number of sub-funds

1 Alternative UCITS out of 2 is currently domiciled in Luxembourg

PwC

The top 10 HF / FoHF Administrators

# HF / FoHF Administrators ranked by $AUA Present in Luxembourg?

1 State Street Yes

2 Citco Fund Services Yes

3 BNY Mellon Yes

4 Citi Group Yes

5 J.P. Morgan Global Fund Services Yes

6 SS&C GlobeOp Yes

7 SEI -

9 Northern Trust Yes

9 RBC Inv estor Services Yes

1 0 Morgan Stanley Fund Services, Inc -

8 out of the top 10 HF / FoHF Administrators are currently active in Luxembourg

PwC

The top 10 HF Managers

7 out of the top 10 HF Managers are currently active in Luxembourg

# Hedge funds managers Location Assets (USD

bn) June 12

1 Bridgewater Associates Westport (US) 80.9

2 BlackRock NY /London 50.2

3 JP Morgan AM/Highbridge New Y ork 44.4

4 Man Investments London 41.4

5 Brevan Howard London 36.7

6 BlueCrest Capital Management London 31.1

7 Och-Ziff CM New Y ork 31.0

8 Winton Capital Management London 28.5

9 Standard Life Investments London 27 .3

10 Angelo Gordon New Y ork 24.0

HF, FoHF, Alternative UCITS domiciled in Luxembourg ?

NO

YES

YES

YES

YES

YES

YES

NO

YES

NO

Source: The Hedge fund journal, Monterey

© 2014 PricewaterhouseCoopers, Société coopérative. All rights reserved. In this document,

“PwC” refers to PricewaterhouseCoopers, Société coopérative, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal

entity.

Régis Malcourant

Hedge Funds Leader, PwC Luxembourg

Contacts

PwC

AIFMD – Lessons learned and strategic positioning post July 2014 Olivier Carré PwC Luxembourg

PwC

AIFM licences – Key challenges & lessons learned

• Remuneration

guidelines

• Conflicts of interest Conduct of

Business

Depositary Function

Management / Marketing Passport

Specific Provisions

Transparency

Authorisation

Functions and services

• Valuation

• Risk & liquidity

management

• Delegation

• Substance

• Reporting to regulator

• Disclosure to investors

• Authorisation

deadlines

• Capital

requirements

• Leverage

• Monitoring of cash flows

• Safekeeping duties

• Oversight duties

• Liability regime

1

2

3

4

5

6

AIFM - Opportunity

AIFM - Conformity

Key Aspects

Depositary - Conformity

PwC

AIFMD licences – Where do we stand in Luxembourg?

12 AIFMs have officially been authorised (8 Chapter 15 UCITS ManCos)

1

Approximately 90 AIFM applications pending with CSSF 2

First AIFs prospectuses have been approved by CSSF 3

PwC

AIFMD licences – How do we compare to other domiciles?

I

31 32

4 8 12

350

100 100

150 150

0

50

100

150

200

250

300

350

400

UK France Germany Ireland Luxembourg

Licences Full scope AIFM (estimate)

In average 8% of the expected AIFMs are

authorized

AIFM applications and authorizations per domicile

PwC

Panel discussion

What is your chosen AIFM strategic positioning after the AIFMD transition period end

in July 2014?

PwC

Panel discussion

What are the major threats and opportunities arising out

of AIFMD?

PwC

Panel discussion

How do you perceive the readiness of your peer asset

managers?

PwC

Panel discussion

How do you perceive the awareness of the distribution

channels and institutional investors?

PwC

Non-EU AIFM marketing Non-EU AIF in EU – Private Placement (2013 through 2018)

US not on FATF blacklist

Cooperation agreement between US and each EU country where AIF is marketed

US AIFM must comply with transparency (and controlling interest provisions of AIFMD, if applicable)

EU Investors

Caymans not on FATF blacklist

Private Placement Rules

• Marketing to professional investors

• Retail investors continue to be subject to domestic (private placement) rules

Non-EU AIFM Non-EU AIF

PwC

Non- EU AIFM marketing Non-EU AIF in EU – EU Passport as from 2015

US not on FATF blacklist

US AIFM must generally fully comply with AIFMD

Non-EU AIFM Non-EU AIF

EU Investors

EU Passport

Cooperation agreement between US and Caymans and MSR

Tax agreement between US and Caymans and MSR

Jersey not on FATF blacklist Tax Agreements between Caymans

and each EU member state where AIF is marketed

Member State of Reference (MSR)

Legal Representative

• Marketing to professional investors (MiFID) via EU Passport

• Marketing to retail investors continues to be subject to domestic (private placement) rules

PwC

Private Placement Map

Private Placement allowed

Private Placement conditioned

Private Placement abandoned

PwC

Panel discussion

Do you consider the AIFM passport as a “must-have”? Is

private placement still an option?

PwC

Panel discussion

What needs to be modified or enhanced under AIFMD 2?



entity.

Rudolf Kömen

Conducting Officer, Credit Suisse Fund Management S.A.

Andreas Rizos

CFO, Golding Capital Partners

Olivier Carré

Partner, PwC Luxembourg

Contacts

PwC

Operating alternative funds in the current tax climate Wim Piot PwC Luxembourg



entity.

Wim Piot


Begga Sigurdardottir


Will Taggart

Tax Asset Management Leader, PwC US

Oscar Teunissen

Partner, Global and US Tax Financial Services and Sovereign

Wealth Fund Leader, PwC US

Contacts

PwC

AIFMD: New opportunities for the distribution of AIFs Christophe Saint-Mard PwC Luxembourg

PwC

The marketing passport

The Marketing passport

In scope of the AIFMD marketing provisions

• 4 conditions: - Marketing of AIF (“a direct or indirect offering or placement);

- At the initiative of the managing AIFM;

- To professional investors domiciled or with a registered office in the EU;

• A notification process is required from Home to Host regulator to start marketing.

Passive marketing or “reverse solicitation” outside the scope of AIFM Directive

PwC

AIFMD benefits

• Establishment of common requirements to achieve a passport to distribute on a cross

border basis to professional investors

- Consistent approach to market to professional investors in the EU

• Set up of minimum conditions for marketing in the EU without passport (Article 42 of the AIFMD directive)

- Each M.S. can have stricter rules and may forbid marketing without

passport to professional investors.

• To open the EU market to non EU AIFM/AIFs

- What are the options to market in EU to professional investors?

PwC

Overview of the market access options

2013 2014 2017 2018 2019 2015 2016

EU AIFM/EU AIF EU PASSPORT

EUAIFM/

Non EU AIF

Non EU AIFM/

EU AIF

Non EU AIFM/

Non EU AIF

Private Placement

EU Passport

Private Placement

EU Passport

22 July 2013

Deadline for the implementation of AIFMD in the Member States

22 July 2014

Grandfathering provisions. Delay to apply for AIFM licence

ESMA Decision on

Private Placement Regime

ESMA Decision on

availability of EU Passport for non EU AIFM and non EU AIF

Private Placement

EU Passport

?

?

?

PwC

Market access options: Private placement

• Before AIFMD: National rules govern the ability to market non harmonised funds to professional investors;

• AIFMD: Articles 36, 42 and 43 set up minimum conditions for marketing in the EU without passport but M.S can have stricter rules and may forbid marketing without passport to professional (and may not allow marketing to retail investors).

=>With AIFMD implementation, some M.S are reviewing/changing their PPRs

PwC


• Cooperation arrangements are in place between AIF’s country, AIFM’s MS and

target MS

• The AIFM complies with the AIFMD’s transparency requirement (AR, reporting to

investors/regulators)

• The AIF is not established in a country listed as a NCCT by FATF

• The targeted member states must allow private placement

• The AIFM complies with the specific Host MS additional country requirements for marketing to professional investors under PP

Private Placement permitted to non-EU structures if:

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• There are important benefits for the investment fund industry to allow transactions under private placement

• But no regime at EU level and national regimes are more closing than opening to private placement

• Closing private placement between professionals for UCITS funds could be detrimental as institutional investors have the majority in UCITS funds

• Is the future an EU private placement regime or simply passport or nothing (ESMA decision)?



entity.

Marnix Aricks

Managing Director, BNP Paribas Investments Partners Belgium

Luc de Vet

Managing Director, Citco Fund Services (Luxembourg) S.A.

William Jones

Managing Partner, Management Plus (Luxembourg) S.A.

Christophe Saint-Mard


Contacts

PwC

EMIR and AIFMD: operational challenges for AIFs

Lionel Nicolas PwC Luxembourg

PwC

AIFMD – Key dates AIFMD Areas

•Entry into force

•Level 2 measures by the EU commission

•Deadline for the authorisation of AIFM

21 July 2011

December 2012 AIFM set-up

Steps

21 July 2014

Closing following the

authorisation !

!

Reporting

•Reporting to the Regulator

•Reporting in the financial statements

31 October 2014 (latest) !

PwC

EMIR – Key dates

EMIR Areas

•Timely confirmation

•Mark-to-market/Marking-to-model

•Dispute resolution

•Portfolio Compression

•Portfolio Reconciliation

•Collateral exchange (including margin requirements)

•Clearing via CCPs

15 March 2013

15 September 2013

15 May 2014 (min.)

16 March 2015 (max.)

Central

Clearing

Provisions

Reporting

To be defined

12 February 2014

?

!

?

Risk

Mitigation Techniques

(RMT) Clearing

(OTC)

PwC

The operational challenges

Trade repositories

Valuation

ISDA agreements

Safekeeping

Regulatory technical standards

Eligible counterparties

RMT

ESMA

CCP

Data availability

SLAs & contracts

Central clearing

Delegation

Eligible collateral

EMIR AIFMD

Reporting

Oversight

Risk Management

Due diligence

PwC

The new operating model

Investor

AIFM Depositary

AIF

CPs Admin.

CSSF

Sub Custodian

Trade Repository

External Valuer

CCP Clearing Member

! Heavily

im pacted

! ! !

New

actors

! Prime Broker



entity.

Benjamin Gauthier

Director, PwC Luxembourg

Franck Wassmer

Deputy General Manager, BNY Mellon

Lionel Nicolas


Contacts

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