competing globally in the asset management … globally in the asset management industry: 2012 ......
TRANSCRIPT
Copyright © 2012 by K&L Gates LLP. All rights reserved.
Competing Globally in the Asset Management Industry: 2012
Panelists:
Sean P. Donovan-Smith, Partner, K&L Gates London Office Nicholas S. Hodge, Partner, K&L Gates Boston Office Stuart E. Fross, Partner, K&L Gates Boston Office Tan Choo Lye, Partner, K&L Gates Hong Kong Office
October 16, 2012
1
2
Competing globally in Europe
Sean Donovan-SmithTel: 44.(0)[email protected]
K&L Gates office locations in Europe
3
Competing globally in EuropeKey considerations
Aligned with the firm’s purpose and objectives Operational and marketing factors
Fund options Closed ended funds and the EU’s Prospectus Directive regime Open-ended funds: Non-UCITS v UCITS funds Other UK specific options: Qualified Investor Scheme and
NURS
4
What is a UCITS fund? Undertakings for Collective Investment in Transferable Securities (UCITS)
introduced almost 25 years ago
Collective investment schemes established and authorized under aharmonized European Union (EU) legal framework
UCITS established and authorized in one EU Member State can be sold cross border into other EU Member States without a requirement for an additional authorization
“European passport” central to the UCITS regime and enables fund promoters to create a single product for the entire EU rather than having to establish an investment fund product on a jurisdiction by jurisdiction basis
Can be sold to the general public
5
Investment Restrictions Original focus on transferable securities
Principal focus on portfolio diversification and liquidity
General “5/10/40” rule: Maximum 10% of a UCITS net assets may be invested in
transferable securities issued by the same body Aggregate limitation of 40% of net assets on exposures of greater
than 5% to single issuers;
2007 Eligible Asset Directive Expanded definition of transferable securities to include other
instruments that had limited down-side loss, adequate liquidity and appropriate valuations
Money market funds, investment in closed ended funds, certain derivative products
6
100%Yes10%Yes10%YesBorrowing
NoneYesNoneYesNilNoGold
NoneYesNoneYesNilNoReal Estate
NoneYesNoneYesNoneYesDerivatives
NoneYesNoneYesNoneYesDeposits
NoneYesNoneYesNoneYesInvestment Trusts
NoneYesNoneYesNoneYesWarrants
NoneYesNoneYes30%YesOther CIS
NoneYesNoneYesNoneYesOther UCITS
NoneYesNoneYesNoneYesGovernment and other public securities
NoneYes20%Yes10%YesUnapproved Securities
NoneYesNoneYesNoneYesApproved Securities
MaxAllowedMaxAllowedMaxAllowedQISNon-UCITS Retail SchemeUCITS
Investment
Permitted Investments for UK Schemes
7
Fund Structures: Self-Managed UCITS Investment Company
Investment Investment CompanyCompany
Investment ManagerInvestment Manager DistributorDistributor Administrator / Administrator / Transfer AgencyTransfer Agency CustodianCustodian
Investment AdvisorInvestment Advisor SubSub--DistributorDistributor Global CustodianGlobal Custodian
8
Fund Structures: UCITS Investment Company with Management Company
Investment Investment CompanyCompany
Management Management CompanyCompany CustodianCustodian
Investment ManagerInvestment Manager Global CustodianGlobal CustodianDistributorDistributor Administrator / Administrator / Transfer AgencyTransfer Agency
Investment AdvisorInvestment Advisor SubSub--DistributorDistributor
9
Marketing and Distribution Product regulation and marketing activity Key documents Prospectus and supplemental prospectus KIIDs (replaced simplified prospectus)
Passporting UCITS IV Streamlining registrations Pooling options Management Company passport
10
Recent Developments Amending and developing the UCITS regime (UCITS V and
UCITS VI) Review of the Markets in Financial Instruments Directive
(MIFID) The UK’s Retail Distribution Review (RDR) EU’s proposed Packaged Retail Investment Product (PRIP)
regime The EU’s Alternative Investment Fund Managers Directive
(AIFMD) Others
12
UCITS and the US Money Manager
UCITS gives a US money manager a collective investment scheme that travels well:
A US based registered investment adviser can have investment discretion (risk management and trading discretion) over a UCITS.
The investment adviser must be SEC registered
Delegation: The self-managed UCITS board will appoint the RIA or the ManCo will appoint the RIA.
Risk Management/Compliance functions will be retained by the board/ManCo
13
What kind of fund can be a UCIT?
UCITS can be stock, bond or money market funds
They can utilize derivatives widely that are not necessarily linked to stock or bond markets
They can consist entirely of derivatives
Users of derivatives are likely to be considered “complex UCITS”, subject to a specialized risk management regime
Leverage limits apply
UCITS use of derivatives is seen in some quarters to be over done, subject to potential “reform”
14
Where Can a UCIT Be Promoted
By the adviser, no where By authorized/registered distributors:
Throughout the EU to retail investors in public offering Simple passport notification procedure
To Latin American pension schemes A fast track for authorization (but not always)
In Japan, Taiwan, HK and Singapore to retail investors in a public offering
15
Distribution: In the US & Canada
Yes, on a private placement basis in the US Reg D and either 3(c)(1) or (7) under the 1940 Act, with a
wrapper and new sub-doc With a local dealer sponsor, and a “wrapper,” and new sub-
doc
In practice, tend to run into investor resistance and lack of familiarity relative to Delaware/Cayman/BVI
UCITS tax/legal structuring tends to conflict as between US, Canada, and EU
That which works well in EU/Asia, might not in US/Canada
16
Limits of UCITS Distribution
Local tax regimes sometimes favor local products
Think of a US IRA/401(k) and a UCIT
Similar problems elsewhere
UCITS are more DC friendly in Europe, but not every where in Europe
Defined benefit type structures tend to be more UCIT friendly (absent familiarity barrier)
17
Focus on Not UCITS in Europe
To date: only UCITS have “passport” cross border public offering regime
To date: AIFs are sold in National Private Placements Alternative Investment Fund Managers Directive
18
Structuring Private Funds for European Investors- Regulatory ConsiderationsPrivate placement rules vary enormously but fall into 5
main categories:
1. subject to a minimum investment amount (e.g. Belgium €250,000, Holland €50,000)
2. by number of offerees - e.g. Denmark (8), Holland (100)
3. by type of investors (e.g. institutional, large corporates, sophisticated individuals etc.) – Finland, Germany, Holland, Switzerland, UK
4. All forms of active solicitation banned – France, Italy, Norway, Spain
5. No restrictions - Sweden
19
Alternative Investment Fund Managers DirectiveBasics AIFMs to be subject to significant additional regulation – already
subject to MiFID (required to be regulated, have minimum capital, subject to conduct of business rules, etc)
AIFMD effectively regulates AIFs as well as AIFMs by restricting marketing of both EU and non-EU funds into the EU
EU AIFMs granted a passport to market EU funds to ‘professional investors’ throughout the EU from 2013
2015 - EU AIFMs may be granted a passport to market non-EU funds to ‘professional investors’ throughout the EU from 2015 subject to AIF and non-EU jurisdiction complying with various ‘equivalency’ requirements
20
Alternative Investment Fund Managers DirectiveBasics
From 2015 non-EU AIFMs (e.g. US firms).may be also able to apply to become recognised AIFMs and be granted permission to manage and market EU and non-EU funds to ‘professional investors’throughout the EU (subject to non-EU AIF and non-EU jurisdiction complying with various ‘equivalency’requirements)
21
AIFMD Impact On US Money Managers1. Private Placements. Article 49 AIFMD affects national
private placements with three new requirements (transparency, annual report, regulator reporting). US Advisers will be affected by this immediately
2. Securitizations and UCITS. Article 63 rules on securitization compliance will affect UCITS (and AIFMD) US Advisers to UCITS are effected by this immediately
3. US UCITS Managers thinking about AIFMD. Senior Management Accountability AIF Specific Business Plans Remuneration Guidelines
22
AIFMD Strategies
Passport from 2013/2015 Possible first mover advantage for early AIFMs
Passport Opportunity: AIFMs will have active/broader marketing to into Denmark, France, Italy, Norway and Spain from 2013
If US manager wants to passport from the US, the adviser has to wait for the EU to be ready: 2015 and hope that the SEC and ESMA to agree to a cooperation agreement
US adviser continue national private placements, so long as permitted
23
AIFMD Potential Pitfalls Possible differences to UCITS await finalization of “Level 2 Regulations”
Widely disclosed consideration by the European Commission of Level 2 Regulations that would preclude an EU AIFM from delegation of investment selection and risk management
The problem of the “Letter Box Entity”
As we await the Level 2 Regulations, AIFMD could produce either an opportunity for US managers to distribute AIFs widely to professional investorsOr
AIFMD could inhibit distribution in Europe over time by US managers if delegation of investment discretion is prohibited and national private placements are restricted
24
Conclusion UCITS changing – investment range could be narrowed,
remuneration rules introduced, some degree of harmonization withAFIMD likely
UCIT remains very flexible – subject to a rethink
AIFMD will effect fixed income, even for UCITS, now
Anticipated that private placement route will disappear from 2018 –but subject to ESMA decision in 2015
US advisers accessing the EU through funds will likely find themselves doing so through UCITS or authorized AIFs in 5 years time, if not sooner
26
27
28
The Asian Potential Three of the top five sovereign wealth funds in the world are based in
Asia Temasek Government of Singapore Investment Corporation China Investments Corporation
By 2020, China’s financial assets could total US$65 trillion –constituting nearly 59% of all emerging market assets and 18% of total global assets (McKinsey Global)
By 2017, China will overtake USA as the world’s largest economy (IMF)
Institutions from Hong Kong, China and Singapore manage approximately $940 billion in equity assets. Over the past five years, this total has grown at a 25% compound annual growth rate (CAGR)
29
Equity Asset Centers
Currently, Asian investors allocate roughly 15% of equity assets to non-Asian-domiciled companies. Comparatively, North American and European investors allocate 25% and 39%, respectively, to global equities beyond their borders.
30
Why is Asia important to you?
Nearly half of Asia-domiciled investors plan to increase their rate of investment ex-Asia over the next 5 years
Each additional percentage point of investment = US$7.3 billion in equity assets
31
Know your marketMarket stratification
Established cross-border fund centers Singapore, Hong Kong, Taiwan
‘Emerging’, smaller , and/or less mature markets Malaysia, South Korea
Mature ‘inward focused’ markets Japan
China does not permit direct distribution
32
Know your market
Market characteristics of Singapore, HK, and Taiwan
High savings rate
Low market penetration for funds
Strong aggregated growth and resiliency of funds flows
Traditional preference for cash, and investing at home
33
Global Equity Ownership by Sector excluding Asia
34
Know your market
Characteristics of Asian investors Prefer funds investing in local assets
Diversification of portfolio
Investment and preparation for old age
Listing in Asia
Fund-churning retail investors
Long-term sovereign wealth investors
35
Know your market
Characteristics of Asian jurisdictions ETF’s – Hong Kong and Singapore most popular for
cross-listing
Partnering with local service providers in PRC, Indonesia, Malaysia, Thailand
36
Know Your Product
Sophisticated investors who want to know strategic differentiators upfront
USP – unique selling points
Flexibility when dealing with mandate restrictions
37
Know your limits
Licensing and regulatory issues
Singapore
Code on Collective Investment Schemes as a guideline Recognition of the Fund Registration of the Singapore prospectus Complying with advertising restrictions Licensing for marketing securities and dealing in securities
38
Know your limits Hong Kong approval process Compliance with the Securities and Futures Commission’s (“SFC”)
Handbook for Unit Trusts and Mutual Funds, Investment-Linked Assurance Schemes and Unlisted Structured Investment Products
Fund must be authorized Appointment of trustee/custodian acceptable to the SFC Licensing for marketing of securities, providing investment advice
and asset management services Appointment of a local Hong Kong representative Submit offering document supplement with covering document Market expenses cannot be charged to fund Strict rules on acceptable advertising Approval process has slowed from about 6 weeks to over 1 year
39
Know your limits Taiwan
No direct distribution by foreigners is allowed Securities Investment Trust & Consulting Association of the
Republic of China (“SITCA”) must first vet the fund and based on its recommendation, the Financial Supervisory Commission performs regulatory approval
Funds must be of a minimum size and in existence at least one year prior to application
Limits on the amount invested in the People’s Republic of China Fund cannot be denominated in Taiwan $ or renminbi Approval process takes at least 3 to 4 months
40
Know your limits Reverse solicitation
Unintended solicitation
Dealing with sovereign wealth funds
41
Know your limits
Enforcement
Hong Kong – Tiger Asia Japan – AIJ, United Investments, Stats Singapore – regulatory reforms Taiwan – Increased supervision by Financial
Supervisory Commission PRC – assume nothing is allowed, use practical
common sense
42
Know your investmentsWhere you should be based on what your
investments will be
Hong Kong: China is closed to direct distribution UCITS obtained by and through financial institutions licensed as
Qualified Domestic Institutional Investors (“QDII”) QDII’s that also obtain a Qualified Foreign Institutional Investor
license can invest directly through Hong Kong. Also hub to the Asia Pacific region
43
Know your investments
Singapore: Access to South East Asia
Taiwan: A number of asset types are not allowed:
Derivatives including gold, futures, and real estate
Malaysia: Development of Islamic UCITS
44
Know your competitorsWhat your competitors are doing Asian firms creating their own UCITS
Market in their own jurisdictions Extend distribution in region Market own products to Europe
Asian Passport “China” passport “ASEAN” passport
45
Know your competitorsWhat you need to sell your product
Cultural understanding and adaptation Operational strategy Good partners to gain access to local network Designing fit-for-purpose operating and service
models
46
What you need to do Maintain close links with Asia Consider setting up shop in Asia Regular updates to Asian investors Working with Asian partners
Be flexible with your product – tailor them to suit investors
Be open to opportunities
48
Hedge Fund Opportunities in China Inbound – Direct investment in the securities of
Chinese companies
Outbound – Managing QDIIs
Outbound – Offering hedge fund interests into China
49
Hedge Fund Opportunities in China For years, China has permitted foreign pension funds and
insurance companies to invest directly in the securities of Chinese companies by obtaining a license called Qualified Foreign Institutional Investor (“QFII”)
Hedge funds have not yet been permitted to obtain QFII licenses.The Chinese government has been concerned that hedge funds would disrupt Chinese securities markets.
The concern derives in part from mistrust of short selling, which is forbidden in China.
50
Hedge Fund Opportunities in China Currently, many hedge funds are accessing the Chinese securities
markets through their prime brokers, which use their own QFII quotas to purchase securities on behalf of their clients.
The Chinese government has recently accelerated the pace at which QFII licenses are being granted.
In addition, the China Securities Regulatory Commission is considering a proposal to expand the types of investors that could apply for a QFII license to include hedge funds.
51
Hedge Fund Opportunities in ChinaOutbound The Qualified Domestic Institutional Investor regime (“QDII”)
allows qualified Chinese financial institutional investors to invest in overseas capital markets. Holders of QDII licenses may raise money from Chinese individuals and institutions and hire foreignfinancial advisers to manage these assets.
The Shanghai Financial Service Office has proposed a third regime: Qualified Domestic Limited Partner (“QDLP”) which has attracted considerable attention.
52
Hedge Fund Opportunities in China The QDLP proposal would permit large hedge funds (over US $10
billion) to market their funds into China.
This is only a proposal by a municipal authority. It is subject to approval by the China Securities Regulatory Commission. It may never materialize.
Nonetheless, the potential for fundraising in China is so great that some US managers are already establishing offices in China in anticipation of the adoption of this proposal.
Increasing Investor Disclosure Requirements and Restrictions for UCITS Funds By Sean Donovan-Smith
The European Commission (the Commission) and European Securities and Markets Authority (ESMA) recently published additional guidelines for Undertakings for the Collective Investment in Transferable Securities funds (UCITS) and launched further consultations on the UCITS regime, including the use of repurchase agreements ("repo") and derivatives products and the regulation of money market funds.
Broadly, funds that comply with EU UCITS rules on eligible assets, issuer concentration or risk spreading can be sold to professional and retail investors across the European Union (EU). Most money market funds and exchange traded funds (ETFs) in the EU are structured and regulated as UCITS.
The Commission and ESMA have been increasingly focusing on ETFs and the use of derivatives given the significant increase in the number of ETFs and the increasing use of derivatives products either as part of a fund's investment strategy or as part of efficient portfolio management (EPM). The Commission and ESMA are concerned that the quality and liquidity of such funds may be declining, and accordingly, the Commission and ESMA are looking at steps that can be taken to maintain investor and market confidence.
This Client Alert will be of interest to senior managers, compliance officers and in-house counsel of funds, fund managers, depositaries and other service providers to UCITS funds.
ESMA's ETF Guidelines and Repo Consultation On 25 July 2012, ESMA published additional guidelines (the ESMA Guidelines) for UCITS funds that focused on: (i) ETFs and index tracking funds and (ii) EPM techniques, including the use of derivatives products and collateral management. The guidelines will apply to EU Member State market regulators, UCITS management companies and self-managed UCITS funds.
The ESMA Guidelines have been introduced following a review of the current regulatory regime earlier this year, and the guidelines set out information that should be given to investors about index-tracking UCITS and UCITS ETFs, together with specific rules for UCITS when entering into over-the-counter (OTC) financial derivatives transactions and using EPM techniques. ESMA hopes that these measures will strengthen investor protection and harmonize regulatory practices across the EU. A number of different means are used to address these goals, including improving the content of information communicated to investors and setting out quantitative and qualitative criteria for collateralized transactions such as securities lending arrangements, repo and reverse repo transactions and OTC financial derivatives transactions.
The key provisions include:
UCITS that fall within the definition of an UCITS ETF will have to carry the designation "UCITS ETF."
UCITS ETFs will have to ensure appropriate redemption conditions for secondary market investors by opening the fund for direct redemptions when there is a lack of liquidity in the secondary market. 11101010
10 September 2012 Practice Group: Investment Management, Hedge Funds and Alternative Investments
Increasing Investor Disclosure Requirements and Restrictions for UCITS Funds
2
UCITS using EPM techniques such as securities lending activities will have to inform investors clearly about such activities and the related risks, (EPM activities include securities lending and repo transactions, as well as the management of collateral that is received or granted to secure these transactions).
All revenues net of operating costs generated by EPM activities must be returned to the UCITS fund.
When a UCITS enters into securities lending arrangements, it should be able at any time to recall any securities lent or terminate any agreement into which it has entered.
UCITS receiving collateral to mitigate counterparty risk from OTC financial derivatives transactions or EPM activities must ensure that the collateral complies with strict qualitative criteria and specific limits in relation to diversification (which amend certain aspects of the existing Guidelines on Risk Measurement and Calculation of Global Exposure and Counterparty Risk for UCITS (CESR/10-788)).
UCITS investing in financial indices will have to ensure that investors are provided with the full calculation methodology of such indices, and UCITS funds must only invest in financial indices which respect strict criteria regarding, among other matters, the rebalancing frequency and their diversification.
In addition to the ESMA Guidelines, ESMA simultaneously published a further consultation on the use of repo and reverse repo arrangements by UCITS funds.
ESMA is consulting on a distinct regime for repo and reverse repo arrangements which would allow a proportion of the assets of the UCITS to be non-recallable at any time at the initiative of the UCITS. The proposed guidelines include safeguards to ensure that the counterparty risk arising from these arrangements is limited and that UCITS entering into such arrangements can continue to execute redemption requests.
The consultation in relation to repos and reverse repos is open for comment until 25 September 2012.
Once adopted, the proposals on repo and reverse repo arrangements will be integrated into the ESMA guidelines in order to have a single package of rules. The final guidelines, comprising the new ESMA Guidelines and the rules on repo and reverse repo agreements will become effective two months after publication on the ESMA website.
The ESMA Guidelines can be found here.
Commission Consultation on UCITS Funds On 26 July 2012, the Commission announced a further consultation on investment fund issues (the Commission Consultation) subsequent to its ongoing work on shadow banking and a previous consultation on investment funds published on 19 March 2012. The Commission Consultation is separate from the Commission's proposals adopted on 3 July 2012 focusing on specific issues of UCITS depositary, remuneration and sanctions and the Commission Consultation builds on and is complementary to the ESMA Guidelines outlined above.
The Commission Consultation raises a series of issues and policy options aimed at maintaining investor confidence in money market funds, including the role of money market funds in the management of liquidity for investors, their engagement in the securities lending and repo markets, their systemic involvement in the overall financial marketplace and issues with various methods for calculating the net asset value for money market funds. The Commission Consultation also seeks further feedback on the use of EPM techniques by UCITS fund managers to deepen its insight into the potential systemic and investor implications raised by the use of EPM.
Increasing Investor Disclosure Requirements and Restrictions for UCITS Funds
3
The Commission Consultation seeks feedback on a number of issues, including:
the regulation of money market funds, including valuation, liquidity and redemptions;
EPM and securities lending and repo arrangements, including risk diversification requirements and collateral issues;
central clearing of OTC derivatives and counterparty risk;
liquidity and redemption management, including time limits, suspensions, deferred redemptions and guaranteed liquidity for ETF UCITS funds;
the introduction of a "depository" passport;
the notification provisions introduced by UCITS IV;
the retailisation of UCITS funds that use "eligible assets"; and
providing a framework to support long-term investments.
The Commission Consultation is open until 18 October 2012.
The Commission Consultation can be found here.
Next Steps Although expressed as "guidelines", EU Member State regulators will have regard to them when assessing a firm's compliance with the applicable UCITS regulations and as such firms within the scope of the ESMA Guidelines should ensure that they comply with them. Any new UCITS fund's created after the date of application of the ESMA Guidelines should comply immediately. Existing UCITS funds are required to make any applicable amendments to their investments or documentation within 12 months of the application date of the guidelines. (Note that some provisions will nevertheless apply earlier. For example, existing UCITS ETFs should comply with the provisions related to the treatment of secondary market investors from the application date of the ESMA Guidelines). Accordingly, UCITS funds that fall within the scope of the proposed changes should ensure that their fund documentation includes the prescribed information and is clearly labeled as appropriate.
UCITS fund managers must also ensure that any profits generated by EPM activities are for the benefit of the UCITS funds that they manage, and such managers will need to ensure that repo and reverse repo arrangements comply with the new EMSA Guidelines. This may impact on costs for funds as some providers of securities lending services have previously retained a percentage of the fee income for themselves.
At a minimum, the new ESMA Guidelines are likely to lead to at least some increased compliance costs for UCITS funds and UCITS fund managers.
Interested parties who wish to comment on the consultation should do so by the relevant dates above. If you would like to discuss any of the issues raised in this Legal Insight, please contact one of our team below.
Increasing Investor Disclosure Requirements and Restrictions for UCITS Funds
4
Author:
Sean Donovan-Smith [email protected] +44 (0)20 7360 8202
Contacts: Martin Cornish [email protected] +44 (0)20 7360 8162
Phillip Morgan [email protected] +44 (0)20 7360 8123
Alice Bell [email protected] +44 (0)20 7360 8304
Sean Donovan-Smith Partner
London T +44 (0)20 7360 8202 F +44 (0)20 7648 9001 [email protected]
OVERVIEW Sean Donovan-Smith is a partner in the firm’s London office. He is a financial services lawyer with over 14 years’ experience in the financial services industry, having acted for a range of clients including funds, managers, advisers, and institutional investors. Sean focuses his practice in financial services and markets regulatory advice, regulatory enforcement and investigations, advising on regulated and unregulated funds and the international marketing of funds, and other financial products.
PROFESSIONAL BACKGROUND Sean has developed a broad range of experience dealing with complex financial services matters including FSA interventions/regulatory transactions, OTC and Exchange Traded Derivative products, regulatory compliance, risk management, FSMA/FSA requirements and cross-border regulatory issues.
Before entering into private practice in 2003, Sean was with INVESCO Asset Management Limited between 1998 and 2002 where he was the Associate Director of Business & Legal Affairs for INVESCO’s offshore division. His responsibilities included supervising compliance with legal requirements in Ireland, Jersey, Luxembourg and the United Kingdom. Following INVESCO’s acquisition of Liechtenstein GT in May 1998, he was seconded to Dublin to manage the integration of INVESCO’s key international distributors (Merrill Lynch and Charles Schwab).
After leaving INVESCO, Sean was a management consultant between 2002 and 2003 at CSTIM Limited (now part of Navigant Consulting), a specialist financial services consultancy firm) where he consulted on outsourcing, lift-outs, UCITS funds and structured fund products. During this period he led a team advising a major U.S. bank on a potential cross-border acquisition and undertook a project to review of FTSE 100 international fund management company's compliance with new financial services regulations.
Sean regularly participates in policy advocacy and advice and was a member of the Conservative Party’s Pensions Working Group to respond to the Government Green Paper on Pensions Reform and advised the Conservative Party’s chief negotiator for the EU’s Alternative Investment Fund Managers Directive.
PRESENTATIONS Sean speaks frequently on financial services regulatory and compliance issues. His recent presentations include:
Sean Donovan-Smith (continued)
2
Protection of Customer Funds at the IDX International Derivatives Expo 2012
Impact of the Default of MF Global, Futures and Options Association
Future of Hedge Fund Formation
Introduction of the Pan-European Short-Selling Regime
Impact of the Alternative Investment Fund Managers Directive
The Regulation of Carbon Credit Trading
Trends in Prime Brokerage Arrangements
PUBLICATIONS Sean has been interviewed on BBC Breakfast, Sky News and Albourne TV; he has been a guest commentator for BBC 24 and BBC Radio 4’s The World Tonight; he has articles published in Bloomberg’s Journal of European Business Law, City A.M., Compliance Reporter, Complinet, the Futures and Options Association Yearbook, Fund AIM, Hedge Fund Review, and RBS Trust Magazine; and has been quoted in the Financial News and the Hedge Fund Journal.
PROFESSIONAL/CIVIC ACTIVITIES Alternative Investment Management Association
Chartered Institute of Securities and Investments
Financial Services Lawyers Association
Futures Industry Association
Society of Conservative Lawyers
UK National Defence Association
ADMISSIONS England & Wales
EDUCATION Post-Graduate Diploma in Legal Practice, The College of Law, 2002
Post-Graduate Diploma in Law, The College of Law, London, 2000
M.Litt., University of St. Andrews, Scotland, 1996 (management, economics, and politics)
BBA, University of Massachusetts, Amherst, 1995 (management with economics)
ACHIEVEMENTS Named in Legal 500 and Legal Experts (for Investment Funds)
Sean Donovan-Smith (continued)
3
REPRESENTATIVE WORK Acting for various clients in the default of MF Global Inc and MF Global UK Limited
Advising on offshore fund structuring and formation including advising on UK and offshore fund migrations, fund re-structuring and outsourcing projects
Advising on regulatory issues including the FSA approved persons regime, the EU Market in Financial Instruments Directive, the EU Capital Requirements Directive, training and competence, systems and controls and transfer pricing
Establishing UK fund managers/advisers and applications for FSA authorisation
Establishing new fund focused on Commodity Trade Finance
Advising on carbon trading based investments
Advising on obtaining FSA recognised status for offshore and EU based funds
Negotiating and advising on service provider agreements such including administration agreements, Model B clearing and settlement and prime brokerage arrangements (including ISDA documentation)
Reviewing and updating terms of business for broker-dealers
Acting for clients in relation to claims related to failure to supervise Appointed Representatives, breach of investment mandates and breach of other regulatory rule requirements
Defending allegations of market abuse against a Canadian broker
Advising on cross-border response to US litigation arising out of an SEC enforcement action (Trustees of AremisSofl Liquidating Trust v Kyprianou and others)
Stuart E. Fross Partner
Boston T 617.261.3135 F 617.261.3175 [email protected]
OVERVIEW Stuart Fross is a partner in K&L Gates’ Boston office where he concentrates his practice on securities laws and regulations, as part of the Investment Management Practice Group.
Mr. Fross’ main focus is investment managers and pooled investment vehicles, including US registered open-end, closed end and exchange traded funds, bank collective investment funds (with an emphasis a stable value funds), UCITS funds, as well as private funds, organized in the US and offshore. Mr. Fross has extensive experience in equity, high-income and fixed income trading operations, as well as with distribution related issues for registered and unregistered funds.
PROFESSIONAL BACKGROUND Prior to joining K&L Gates, Mr. Fross was Deputy General Counsel and Senior Vice President for Strategic Initiatives with Fidelity Management & Research Company and Assistant Secretary of the Fidelity Group of Funds. Mr. Fross held several additional positions at Fidelity, including four years as Deputy General Counsel and Senior Vice President to the Legal Product Management division, during which time he was responsible for all registration statement filings for the Fidelity Funds. From 1998 to 2001, Mr. Fross was General Counsel and Senior Vice President for Fidelity International Limited, where he supervised Fidelity's legal, compliance and administrative staff located in Europe, Asia and Bermuda. At various times, Mr. Fross supported Fidelity’s transfer agency, fund accounting, institutional distribution, Canadian and Latin American businesses. In 2002 to 2004, Mr. Fross was the Senior Vice President – Strategic Initiatives of Fidelity Brokerage Company where he was responsible for initiating Fidelity’s strategy for retail distribution of fixed income securities.
Mr. Fross is also a co-inventor of a business method patent related to active ETFs. The patent covers technology for an ETF to invest in an actively managed mutual fund and for the ETF sponsor to create a creation and redemption basket that approximates the holdings, risks and return characteristics of the mutual fund without disclosing its entire portfolio.
PROFESSIONAL/CIVIC ACTIVITIES Mr. Fross is a Lecturer in Law at the Boston University School of Law in the Graduate Program in Banking and Financial Law.
He is a frequent speaker at industry events on such topics as the history of the fund industry and related regulation.
Stuart E. Fross (continued)
ADMISSIONS
Massachusetts
EDUCATION J.D., University Chicago Law School, 1985
A.B., Middlebury College, 1981 (cum laude)
PUBLICATIONS “Authorization for US Managers under the AIFMD,” The Investment Lawyer, April 2012
“AIFMD Implementing Regulations Update: ESMA’s Final Report and Impacts for US Managers,” The Investment Lawyer, February 2012
“The Advent of Investment Adviser Remuneration Regulation,” The Investment Lawyer, July 2011.
“A Dodd-Frank Primer for EU Money Managers,” Performance, January 2011.
“A Dodd-Frank Primer for EU Money Managers,” Luxembourg Fund Review, November/December 2010.
“Market Buzz: A Short Summary of Cross Border Distribution of Collective Investment Schemes in the United States,” Performance, April 2010.
“2009 Revised Form N-1A and Summary Prospectus Outline,” WilmerHale Attorney Advertising, March 2009.
“SEC Adopts XBRL Requirements for Fund Risk/Return Summaries,” WilmerHale Publication, February 2009.
“SEC Approves Mutual Fund Summary Prospectuses,” WilmerHale Publication, January 2009.
“The Beginning of the End of Money Market Funds?” WilmerHale Publication, January 2009.
PRESENTATIONS “Managed Accounts –Regulatory/Compliance Update,” 10th Annual Managed Accounts
UMA Summit, Boston, MA, September 13, 2012
"The Uncertainty of Financial Reform," Deloitte’s New York Hedge Fund Symposium, New York, NY, September 20, 2012
"The Uncertainty of Financial Reform," Deloitte’s Boston Hedge Fund Symposium, Boston, MA, October 17, 2012
“Investment Adviser Remuneration Regulation – Update,” Remarks to the International Committee of the Investment Adviser Association, June 21, 2012
K&L Gates Seminar, “How the CFTC’s Amendments to Regulations 4.5 and 4.13 will affect Investment Companies,” Boston, MA, April 18, 2012.
Stuart E. Fross (continued)
NICSA 30th Annual Conference & Expo, “Engaging Investors in a Hyper-Connected World
- Intermediary Oversight Panel," Miami, Florida, February 14, 2012.
K&L Gates Seminar, “Competing Globally in the Asset Management Industry,” Boston, MA, October 25, 2011.
Executive Briefing “Mastering AIFMD Challenge” Conference, “The Transatlantic View: AIFMD - Do US Managers Care? AIFMD and Dodd-Frank, Convergence, Divergence or Co-incidence,” Luxembourg, October 11, 2011.
K&L Gates Seminar, “An Update on Proposed OTC Derivative Regulation in the EU and U.S.,” London, England, May 10, 2011.
K&L Gates/Walkers Webinar, “The Revolution in U.S. Law Governing Non-Resident Money Managers,” April 27, 2011.
K&L Gates and ACA Compliance Group Seminar, “Mutual Fund Distributor Roundtable,” Boston, MA, April 20, 2011.
American Conference Institute, Broker Dealers and Investment Advisers Conference, “Federal Regulation of Investment Advisers - Registration & Its Consequences,” New York, NY, March 31, 2011.
Investment Company Institute: 2011 Mutual Funds and Investment Management Conference, “Post-Crisis Regulatory Change – It’s Happening Outside of the US, Too,” Palm Desert, California, March 28, 2011.
K&L Gates/CACEIS Webinar, “Management of Global Private Placements in a Rapidly Changing World,” December 14, 2010.
Investment Adviser Association, IAA Compliance Workshop, Remarks on Form ADV Part 2 and Massachusetts Privacy Regulations; “A Dodd-Frank Primer for Investment Advisers,” Los Angeles, CA, November 30, 2010.
K&L Gates 2010 Investment Management Conference, Boston, MA, November 17, 2010.
Investment Adviser Association, IAA Compliance Workshop, Remarks on Form ADV Part 2 and the Custody Rule; “A Dodd-Frank Primer for Investment Advisers,” Chicago, IL, November 10, 2010.
K&L Gates Seminar, “Competing Globally in the Asset Management Industry,” Boston, MA, October 19, 2010.
Boston University, IM Basics, “ETFs/Wrap Accounts/Money Market Funds,” Boston University, Boston, MA, October 14, 2010.
K&L Gates/Deloitte Seminar, “Pan European Regulation - an update on UCITS IV and AIFM Directives,” Boston, MA, October 6, 2010.
Association of the Luxembourg Fund Industry, 19th Annual Global Investment Funds Forum, “Fund Governance-Developments in the U.S. and Europe and What the Industry Should be Focused On,” Luxembourg, September 28-29, 2010.
K&L Gates Financial Services Reform Seminar, “Practical Implications of Changes to Derivatives Trading under Dodd-Frank,” Boston, MA, September 21, 2010.
Stuart E. Fross (continued)
Financial Research Associates, LLC, 6th Annual Marketing & Advertising Compliance
Forum for Investment Advisers, “International Marketing & Advertising: Global Perspective,” The Princeton Club, New York City, September 16-17, 2010.
International Bar Association, 21st Annual Globalization of Investment Funds, “Global Distribution Panel,” Boston, MA, May 18, 2010.
International Bar Association, Presentation on Global Distribution Issues, May 3, 2010.
National Society of Compliance Professionals: 2009 National Membership Meeting, “Valuation of Fixed Income,” Philadelphia, PA, October 5, 2009.
Webinar, “SEC Mutual Fund Summary Prospectuses - Implications and Compliance,” Boston, MA, March 10, 2009.
Risk Management Association Forum, “Managing Risk and Innovation: Top Ten Learnings,” Boston, MA, April 21, 2009.
National Society of Compliance Professionals: National Membership Meeting, “International Compliance Issues,” Philadelphia, Pennsylvania, October 26, 2008.
Investment Company Institute: Mutual Funds Conference, “Markets in Financial Instruments Directive and the Registered Investment Adviser,” Phoenix, Arizona, March 18, 2008.
The Association of the Luxembourg Fund Industry and The National Investment Company Service Association: The 16th Annual Global Investment Funds Forum, “US Investment Company Corporate Governance Outline,” Kirchberg, Luxembourg, September 26, 2007.
ACHIEVEMENTS Boston's Top Rated Lawyers, AV Preeminent 10 Year Rating by Martindale Hubbell
Listed in 2011 Who’s Who of Business Lawyers, Private Funds 2011
In 2010 John S. Baerst Award for Excellence in Teaching at Boston University’s Graduate Program in Banking and Financial Law
Edwin F. Mandel Award for Clinical Legal Studies, The University of Chicago, 1985
Nicholas S. Hodge Partner
Boston T +1.617.261.3210 F +1.617.261.3175 [email protected]
OVERVIEW Mr. Hodge concentrates his practice in securities law with a focus on investment management, hedge funds, private equity funds, real estate investment trusts and partnerships, timber funds, complex partnership reorganizations, and mergers and acquisitions. He has extensive experience in public and private offerings of securities, SEC and FINRA regulatory requirements, and Investment Advisers Act compliance. Mr. Hodge represents numerous domestic and offshore hedge funds, ranging from startup funds to major fund complexes. His experience also includes:
more than twenty-five years’ experience in representing hedge funds, offshore funds, master-feeder structures, and funds of funds;
over $2 billion in public offerings;
private offerings that raised a major portion of the equity financing for a client’s purchase of 2.6 million acres of timberland; and
the sale to a public company of the largest emergency ambulance provider in New England.
PROFESSIONAL BACKGROUND Mr. Hodge has been a partner at several law firms in Boston.
PROFESSIONAL/CIVIC ACTIVITIES American Bar Association, chair of the Subcommittee on Partnerships, Trusts and
Unincorporated Associations of the Committee on Federal Regulation of Securities 1992-1994
Angel Flight Northeast (Clerk and Pro Bono Legal Counsel)
Since 1996, Mr. Hodge has provided pro bono legal services to create and maintain Angel Flight Northeast, a non-profit organization that provides free air transportation by volunteer pilots in private aircraft for medical patients and their families. He was honored by Angel Flight Northeast at the 2006 Evening of Angels for his service to the company.
Nicholas S. Hodge (continued)
ADMISSIONS Massachusetts
Supreme Judicial Court of Massachusetts
U.S. District Court for the District of Massachusetts
U.S. Court of Appeals, First Circuit
EDUCATION J.D., Yale Law School, 1981
B.A., University of Pennsylvania, 1976 (summa cum laude)
ACHIEVEMENTS BTI Client Service All-Star 2010
Selected for Massachusetts Super Lawyers 2009, 2011
Choo Lye Tan Partner
Hong Kong T +852 2230 3528 F +852 2511 9515 [email protected]
OVERVIEW Choo Lye Tan is a partner in the firm’s Hong Kong office. She practices in the areas of securities, corporate finance, restructuring, mergers and acquisitions, funds and public and private equity issues. Prior to joining K&L Gates, Ms. Tan practiced in international law firms based in Malaysia and Hong Kong, advising her clients on general corporate issues in relation to the laws of Malaysia, Bermuda, the British Virgin Islands, the Cayman Islands and Hong Kong. As a result of her background in offshore and Asian laws, she frequently advises on cross-border transactions, including the strategic structuring and reorganization of groups of companies to best benefit from local corporate legislation, particularly in the areas of asset protection, fund-raising, securities offerings, employment, prospectus registration and tax.
She has a particular interest in utilizing corporate procedures such as takeover offers, capital reorganizations, anonymous associations, trusts and schemes of arrangements to achieve clients’ aims, and has been involved in the structuring and establishment of funds using such procedures to invest in Japanese and Chinese assets. As a result of the strong investor base in Asia, she has also advised extensively on offers of securities in Asian jurisdictions on both a public and private basis and licensing and registration of securities, investment and financial entities. Her mandates have involved investments in China, Hong Kong, Japan, Singapore, Malaysia, Indonesia, Guyana, Australia, Philippines, Mongolia, the United States, England, Italy, and New Zealand in such diverse businesses as timber, investment advisory and management, venture capital, microcredit, real estate and property development, logistics, telecommunications, banking, finance and securities, oil palm, mining, hydropower and water and wastewater treatment, retail and manufacturing.
PROFESSIONAL/CIVIC ACTIVITIES Barrister-at-law, Lincoln's Inn
The Law Society of Hong Kong
ADMISSIONS England & Wales
Malaysia
Bermuda
Hong Kong
Choo Lye Tan (continued)
2
EDUCATION LL.B., University College London, 1993
LANGUAGES Cantonese
English
French
Malay
ADDITIONAL INFORMATION Ms. Tan is the author of numerous articles and delivers papers on a variety of legal and commercial issues, most notably on corporate restructurings and schemes of arrangement, funds, securities laws and licensing, offshore jurisdictions and corporate governance on a regular basis.
REPRESENTATIVE WORK Acted for Aqua Resources Fund Limited (listed on the London Stock Exchange) in its 2009
US$20 million subscription for Series C preferred shares in China Hydroelectric Corporation
Acting as general legal counsel and providing corporate secretarial and administrative services to Aqua Resources Fund Limited and its investment manager, FourWinds Capital Management, in Hong Kong, including, among other things, general legal, corporate and securities compliance with the rules and regulations of the Securities and Futures Commission in Hong Kong, the Companies Ordinance and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
Acting as general legal counsel and providing corporate secretarial and administrative services to Samling Global Limited (listed on The Stock Exchange of Hong Kong Limited) in Hong Kong including, among other things, general legal, corporate and securities compliance with the rules and regulations of the Securities and Futures Commission in Hong Kong, the Companies Ordinance and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
Acted for Samling Global Limited in its 2008 US$50 million investment in the Elegant Living group of companies in China
Acted for Samling Global limited in its 2007 public takeover of Brewster Limited in Australia
Acted for several private equity funds in their establishment and reorganization for purposes of investments in Japanese real property, including their anonymous associations with a Japanese company to benefit from the Japanese Yugen Kaisha Tokumei Kumiai tax structure and the establishment of a Cayman STAR trust for tax benefits
Choo Lye Tan (continued)
3
Advising several private equity fund managers in the establishment, management and on-going legal compliance of their private equity fund vehicles, both on- and off-shore
Acted for a private equity fund in its US$50 million note subscription in Green Dragon Gas Holdings Limited
Acted for a private equity fund in its US$50 million acquisition of a PRC fashion business, including the establishment of an SPV, restructuring of the group and transferring of intra- assets for tax and administrative efficiency
Acted for high net-worth families in the planning, reorganization and holding of their personal assets
Acting for several US-based multinationals in compliance reviews of their operations in China and South East Asia, particularly in the area of FCPA compliance
Acted for the third-largest banking and securities conglomerate in Malaysia, the Rashid Hussain group of companies, in their consolidation, reorganization and eventual acquisition by the Utama Bank group of companies
Acted for several banking and securities companies in their mergers and consolidation into single entities with other securities companies in accordance with the 1997 consolidation directive by the Malaysian government, including Hwang-DBS Securities, Sarawak Securities, Mayban Securities, RHB Bank and Utama Bank
Acted for numerous companies in the establishment and administration of creditors’ schemes of arrangement and group reorganizations, including the establishment of new companies, the de-listing of the shares of the previous listed company and the listing of the shares of the new company on a stock exchange under the laws of Hong Kong, Bermuda, the Cayman Islands and Malaysia
Acted for several companies listed on Kuala Lumpur Stock Exchange and The Stock Exchange of Hong Kong Limited in court-sanctioned capital reductions and schemes of arrangement, including Henderson Cyber Limited and the Akai and Hang Ten group of companies, involving companies incorporated in Bermuda, the Cayman Islands and Malaysia
Advised the-then Kuala Lumpur Stock Exchange in the drafting of new rules upon the introduction of the then-new disclosure-based regime in 1997/8
Acted for a co-operative society in its corporatisation exercise, involving its conversion into a corporate entity, KUB Malaysia Berhad, and the listing of its shares on the-then Kuala Lumpur Stock Exchange