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AIFMD Countdown: Breakfast Briefing No. 5 Level 2 - Le Nouveau Est Arrivé!

AIFMD Countdown: Breakfast Briefing No. 5 Level 2 - Le Nouveau Est Arrivé! . January 16, 2013. Doc No. 18948931. Agenda Today. Level 2 Context and AIFMD Timetable Transitionals Calculation of AUM, Regulatory Capital and PII Cover Operating Conditions: General Principles

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AIFMD Countdown: Breakfast Briefing No. 5 Level 2 - Le Nouveau Est Arrivé!

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  1. AIFMD Countdown: Breakfast Briefing No. 5Level 2 - Le Nouveau Est Arrivé! January 16, 2013 Doc No. 18948931

  2. Agenda Today • Level 2 Context and AIFMD Timetable • Transitionals • Calculation of AUM, Regulatory Capital and PII Cover • Operating Conditions: General Principles • Operating and Organisational Conditions: Conflicts, Risk and Liquidity Management, etc. • Depositaries • Transparency, Leverage and Delegation

  3. Today’s Panel Members • Stuart Martin • Abigail Bell • Chris Gardner • Richard Heffner • Dick Frase • Gus Black

  4. Level 2 Context and AIFMD Timetable Stuart Martin 4

  5. Level 2 Context (1) • AIFMD Level 1 (Directive): • adopted July 2011 • Maximum Harmonising Directive • Limited Scope for Member State discretion e.g. individual portfolio management, capital aspects, annual report aspects, private equity aspects, marketing to retail investors, depositary transitional provisions • AIFMD Level 2 • Regulation with “direct effect” • Will apply in addition to FCA Rule Book • Detailed “meat in the sandwich” provisions

  6. Level 2 Context (2) • Regulatory Technical Standards. For example:- • ESMA Consultation on types of AIF Managed by AIFM • Level 3 Guidelines. For example:- • ESMA Consultation and Guidelines on Remuneration Policies and Practices • ESMA Consultation and Guidelines on Key Concepts e.g. Definition of AIF • Other ESMA Work Streams include:- • Co-operation Agreements with Third Countries • Relevant to Article 36/42 Marketing and Permitted Delegations

  7. Timetable

  8. Transitionals Richard Heffner 8

  9. Transitionals • FSA Firm managing AIF “immediately before” 22 July 2013 • Transitional Relief available until 22 July 2014 • Must submit VoP before 22 July 2014 • Full compliance by earlier of grant of VoP or 22 July 2014 • 22 July 2013: New applicants/applicants with outstanding applications/existing FSA Firms not eligible for Transitional Relief • must obtain AIFMD permission prior to managing AIF • Full compliance • Potential Issues: • Access to EU Marketing Passport and National Private Placements • Cross Border Management of EU AIF under Transitional Relief?

  10. Calculation of AUM, Regulatory Capital and PII Cover Richard Heffner [Level 1: Article 3(2), Articles 9(7)/15] 10

  11. AUM/Regulatory Capital/PII Cover • Calculation of total AUM for purposes of the small AIFM exemptions • Portfolios included / excluded • Temporary limit breaches • AIFM regulatory capital • Change from MiFID investment manager basis • Additional own funds • Min 0.01% of AIF AUM • PI insurance Cover • Min each claim 0.7% of AIF AUM • Min all claims 0.9% of AIF AUM • Dual-authorised UCITS ManCo / AIFM

  12. Operating Conditions: General Principles Abigail Bell [Level 1: Article 12(1)] 12

  13. General Principles (1) • What are “operating conditions”? • Derived from operating conditions for MiFID and UCITS managers – so reflect compliance policies, such as best execution and personal account dealing • So similar to FSA COBS handbook • Some obligations relate to the AIF itself, and not the manager

  14. General Principles (2) • Quality and commitment of governing body/personnel • No “undue costs” charged to investors • Fair treatment of investors • Due diligence requirements • Appointment of prime brokers and counterparties

  15. Operating and Organisational Conditions: Conflicts, Risk and Liquidity Management, etc. Chris Gardner [Level 1: Articles 12,14,15,16,18 and 19] 15

  16. Conflicts of Interest • AIFM/MiFID investment managers/UCITS management companies convergence – business as usual? • Key features of conflicts policy • Disclosure and internal reporting • Impact on personnel structures • AIF voting rights

  17. Risk Management • Tracks equivalent requirements for MiFID investment managers and UCITS management companies • What does “functional and hierarchical separation” mean?

  18. Liquidity Management • A new requirement under AIFMD • Match portfolio liquidity to redemption profile and counterparty commitments • Guidance on liquidity measurement arrangements, liquidity limits and use of redemption gates and other liquidity management tools • Guidance for funds of funds

  19. Internal Procedures and Valuation • Internal Business Arrangements • Data Processing • Accounting Procedures • Permanent Compliance/Internal Audit Functions • Personal Transactions • Record Keeping • Policies and Procedures for Valuation/Calculation of NAV • Use of Models/Frequency of Valuation/Professional Guarantees for External Valuers

  20. Depositaries Dick Frase [Level 1: Article 21] 20

  21. Depositaries • Emphasis on safekeeping and oversight function • Prescribed contents of AIFM/AIF/depositary custody agreement • Ongoing information to be provided between the parties (including prime broker reporting) • Depositary to monitor cash accounts, cash flows, subscriptions and redemptions, monitor AIFM’s procedures, check book-keeping and reconciliations, appropriate valuation procedures, investment restrictions, leverage, transaction settlement, income distribution

  22. Offshore AIF, onshore AIFM (no EU marketing) • Offshore AIFM (EU marketing) Depositary/Prime Broker Structures • Out of depositary scope? • Out of depositary scope

  23. Transparency, Leverage and Delegation Gus Black [Level 1: Articles 22 to 25, Article 20] 23

  24. Transparency and Leverage • Regulations contain more detail on reporting and disclosure • Leverage calculation methodologies and “substantial leverage” • Gross Method • Commitment Method • Comparison vs. UCITS

  25. Delegation (1) Primary Manager Fund Sub-manager ? or AIFM ?

  26. Delegation (2) Article 82(1)(d): • “The AIFM delegates the performance of investment management functions to an extent that exceeds by a substantial margin the investment management functions performed by the AIFM itself…”

  27. Other Provisions • Annual Reporting • Material Changes • Remuneration Disclosure • Periodic Disclosure • Reporting to Competent Authorities • Restriction of Leverage • Arrangements with Third Countries/Co-operation Agreements/Exchange of Information

  28. Dechert LLP • Definitive advicePractical guidancePowerful advocacy • dechert.com • Almaty • Austin • Beijing • Boston • Brussels • Charlotte • Chicago • Dubai • Dublin • Frankfurt • Hartford Hong Kong • London • Los Angeles • Luxembourg • Moscow • Munich • New York • Orange County • Paris Philadelphia • Princeton • San Francisco • Silicon Valley • Tbilisi • Washington, D.C. Dechert practices as a limited liability partnership or limited liability company other than in Almaty, Dublin, Hong Kong, Luxembourg and Tbilisi.

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