Cross-border alternative fund distribution 3 New opportunities for distribution under AIFMD. New countries and distribution channels 8 December 2016 Cross-border alternative fund distribution

Cross-border alternative fund distribution

Expanding your distribution footprint

8 December 2016

Page 2

Agenda

9:00 am New opportunities for distribution under AIFMD. New countries and distribution

channels

► Presentation by Rafael Aguilera, Executive Director, Advisory Services, EY Luxembourg

9:25 am Notification process under AIFMD and related distribution channels

► Presentation by Rafael Aguilera

9:50 am Panel: Brexit - distribution post Brexit - workable models

Moderator: Rafael Aguilera

Panelists:

► Nigel P. Williams, Chairman, Managing Partner, Conducting Officer, Royalton Partners

► Robert White, Senior Manager, Wealth and Asset Management, EY Luxembourg

► Stephen Roberts, Head of Business Development, Lemanik Asset Management S.A.

10:35 am Third countries access under AIFMD: threat or opportunities

► Presentation by Rafael Aguilera

11:00 am Networking coffee

8 December 2016 Cross-border alternative fund distribution – expanding your distribution footprint

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New opportunities for distribution under AIFMD. New countries and distribution channels


Page 4

The AIFMD National Private placement Regime is a mechanism allowing the

marketing by AIFMs of AIFs that are not allowed to be marketed under the AIFMD

domestic marketing or passporting regimes. This principally relates to the marketing of

non- European Union (EU) AIFs and AIFs managed by non-EU AIFMs.

According to the

Directive, Marketing

means 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 registered office in

the European Union.

Distribution under the AIFMD

corresponds to all the methods used

to distribute notified AIFs in the EU.

Reverse solicitation

or passive marketing is

the marketing which is

not at the direct or

indirect initiative of the

AIFM.

Capital raising under

AIFMD

Distribution

Private placement

Revers

e

so

licit

ati

on M

ark

etin

g

Definition of capital raising under AIFMD


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► Banks: 141

► UCITS: 1,894

► AUM: 3,003.4 (in b EUR) (+16.5%)

► Cross-border notifications: 5,803 (+11.6%)

(31 December 2015)

► AIFM: 841 (605:A; 236: R)

► AIF: 1,999

► AUM: 568.7 (in b EUR) (+3.5%)

► Cross-border notifications: 1,758 (+7.5%)

(31 December 2015)

► Market size (figures as of August 2016)

AIFM: statistics and facts in Luxembourg


Page 6

AIFM AIFMarketing

passport regime

National private placement

regime (NPPR)

Target distribution

country

May be

available

from 2015 (*)

Available

until 2018 (*)

May be

available

from 2015 (*)

May be

available

from 2015 (*)

Available

until 2018 (*)

Available

until 2018 (*)

(*) Subject to ESMA approvalNon-EU based

EU-based

Applicability of the passporting regime versus private placement regime


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► Depending on the type of the distribution models, the impacts of MiFID II will slightly differ

► Typical distribution models are likely to evolve to be able to cope with the prohibition of inducements,

however, some new business models will appear (for example fee-based advisers and execution only

brokers in the US E*Trade and TD Waterhouse)

► European investors who are accustomed to buying investment funds have the impression of receiving

free advice from the distributor

► Due to MiFID II, clients will pay directly for independent advice. Product differentiation could be an

incentive for clients to change their minds smoothly and justify the payment of a direct fee to the

distributor

► Successful asset managers already enjoyed changes in the inducement model to launch new product

lines. For instance, Vanguard decided to launch EFTs when the U.S. market began transitioning from a

commission-based sales model to fees for advice. Nowadays, Vanguard ETF business has reached

US$280 b of assets and is close to overtake the second position held by the State Street Global Advisers

► The main current incentives (inducement) for distributors to sell investment products will be prohibited

with MiFID II for independent advice services

► Product managers will need to develop new incentives to encourage distributors to sell their investment

products

New distribution

models

Product differentiation

1

2

Incentives for

distributors

3

Impact on distribution models


Page 8

Retail Institutional

Main HNWI UHNWI InsurersPension

fundsCorporates

Non-profit

org.

Sovereign

wealth fundsOther

Funds

Private Equity r a a a a a a a a

Real Estate r a a a a a a a a

Hedge Funds r a a a a a a a a

Investment mandates r r a a a a a a a

AIF

ManCo

A

B

C

D

E A. Market intelligence

B. Product and pricing design

C. Distribution excellence

D. Branding excellence

E. Operational excellence

Overview of the retail and institutional markets

Key success factors for cross-border

distribution under the AIFMDDistribution models

► Multi-asset class

assemblers

► Active channels

► Guided architecture

► Fiduciary management

► Asset gatherers

► Direct sales

Distribution excellence

Source : EY analysis (2013)

Potential to reach new investors / new markets?


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► Have you been able during 2016 to fully leverage the marketing passport

within the EU?

► Yes

► No

► Not fully

Voting question


Page 10

Notification process under AIFMD and related distribution channels


Page 11

Notification process

under UCITS

ManCo

UCITS

Home state regulator

Host state regulator

Initial registration

Maintenance

EU AIF


Current notification

process under AIFMD

EU AIFM

Max

20

days

(**)

KINGPIN of the notification process

UCITS Management

company

Product

passportManagement company

passport


Non-EU AIF


EU AIFM


EU AIF

Non-EU AIFM

Notification process under

AIFMD from 2015 (*)

(*) Subject to ESMA approval

(**) as from the date of

receipt of the complete

notification file

Max

20

days

(**)

UCITS product passport versus AIFMD management company (ManCo) passport


Page 12

The marketing passport provides the right for EU AIFMs to market EU AIFs to professional investors in all Member States. Marketing of

EU AIFs in EU Member States is subject to the following requirements:

Marketing of an EU AIF in the home Member State of the AIFM (according

to Article 31 and Annex III)

Notification requirements:

► A notification letter identifying the AIF it intends to market and information

on that AIF's place of establishment

► The rules or instrument of incorporation of the AIF

► The name of the depositary of the AIF

► A description of, or any information on, the AIF available to investors (e.g.,

an offering memorandum)

► If a feeder AIF, information on the place of establishment of the master AIF

► Any additional information required pursuant to Article 23 (disclosure to

investors) and

► If relevant, information on the arrangements in place to prevent shares or

units in the AIF from being marketed to retail investors

Marketing of an EU AIF in Member States other than in the home Member

State of the EU AIFM (according to Article 32 and Annex IV)

Notification requirements:

► A notification letter identifying the AIF it intends to market and information on

that AIF's place of establishment

► The rules or instrument of incorporation of the AIF

► The name of the depositary of the AIF

► A description of, or any information on, the AIF available to investors (e.g., an

offering memorandum)

► If a feeder AIF, information on the place of establishment of the master AIF

► Any additional information required pursuant to Article 23 (disclosure to

investors)

► Information on the type of investment strategy of the AIF (*)

► Indication of the Member State in which it intends to market the units or shares

of the AIF and

► Information about arrangements made for marketing of the AIFs and

information on the arrangements in place to prevent shares or units in the AIF

from being marketed to retail investors

Distribution through marketing passport

(“) as set forth in Commission Regulation 231/2013


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Marketing to retail investors remains subject to each Member State’s specific requirements which may be

allowed:

► Whether AIFs are marketed on a domestic or cross-border basis and

► Whether they are EU or non-EU AIFs

According to Article 43 of the AIFMD, each EU Member State may impose stricter requirements applicable to

the AIFs marketed to professional investors.

However, Member States shall not impose stricter or additional requirements on EU AIFs established in

another Member State and marketed on a cross-border basis than on AIFs marketed domestically.

Member States allowing the marketing of AIFs to retail investors had to inform the European Commission

and ESMA by 22 July 2014, of:

► The types of AIFs of which AIFMs may market to retail investors in their territory and

► Any additional requirements that the Member States impose for the marketing of AIFs to retail investors

Retail distribution under Article 43 of AIFMD


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Panel: Brexit - distribution post Brexit - workable models


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► Do you believe in a hard or soft Brexit?

► Hard

► Soft

Voting question


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Panel


Panelists

► Nigel P. Williams, Chairman, Managing Partner, Conducting Officer, Royalton Partners

► Robert White, Senior Manager, Wealth and Asset Management, EY Luxembourg

► Stephen Roberts, Head of Business Development, Lemanik Asset Management S.A.

Moderator:

► Rafael Aguilera, Executive Director, Advisory Services, EY Luxembourg

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Third countries’ access under AIFMD: threat or opportunities


Page 18

Key topics

► Issues identified by ESMA relating to functioning of the EU AIFMD passport:

► Divergent approaches with respect to marketing rules

► Divergent definitions of what constitutes a professional investor

► Varying interpretations of what activities constitute marketing and material changes under the AIFMD passport

► Issues identified by ESMA relating to functioning of the NPPRs:

► No common rules

► Duplicating of filing/reporting obligations

► Concentration of investment opportunities in certain jurisdictions

► ESMA approach when considering extension of AIFMD passport

► Possible suppression of NPPRs

► Business opportunities

AIFMD opening to third countries


Page 19

Non-EU country Cooperation Investor protectionNo significant

market disruptions

No obstacles for

competition

Monitoring of

systematic riskESMA conclusion

USA

ESMA would have

benefited from more

time to assess

investor protection

Uneven level

playing field

Extensive reporting

obligations but

different from

AIFMD

Delay decision

Guernsey

Jersey

Hong Kong

Incomplete

information

Unclear whether

level playing field

Delay decision

Switzerland

Upon

implementation

of SESTA

as from

1 January 2016

Singapore

Scarce and

incomplete

information

ESMA would have

benefited from more

time to assess

investor protection

Barriers to entry

Not enough

evidence

Delay decision

AIFMD opening to third countries (1/2)


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Non-EU country Cooperation Investor protectionNo significant

market disruptions

No obstacles for

competition

Monitoring of

systematic riskESMA conclusion

Australia

Expectations of

good supervisory

cooperation based

on previous

engagements

Difficult to predict in

the long term

Bermuda

Scarce information

ESMA has no

definitive advice

until final version

Delay decision

Canada

Cayman Islands

Scarce information

No final advice can

be provided by

ESMA

No final advice can

be provided by

ESMA

Delay decision

Isle of Man

Scarce information Delay decision

Japan

AIFMD opening to third countries (2/2)


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Current status AIFMD opening to third countries


ESMA gathered intelligence on investor protection, competition, potential market disruption and monitoring

of systemic risk with respect to the following non-EU countries:

a. Malaysia

b. Egypt

c. Chile

d. Peru

e. India

f. China

g. Taiwan

No assessment has been done yet by ESMA on these countries because:

►No Memorandum of Understanding has been signed between those non-EU supervisory authorities and ESMA

►The current level of activity by entities from these countries within the EU did not justify a detailed assessment at this

stage

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► Do you consider third countries’ access to the EU market as a threat for

UCITS and AIFs?

► For both

► For UCITS only

► For AIFs only

► For none of them

Voting question


Thanks

Page 24

Contacts


Rafael AguileraExecutive Director

Advisory Services

+352 42 124 8365

[email protected]

EY | Assurance | Tax | Transactions | Advisory

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Documents

Cross-border alternative fund distribution 3 New opportunities for distribution under AIFMD. New countries and distribution channels 8 December 2016 Cross-border alternative fund distribution