Lesson 3 Bank-Based vs Market-Based Financial Systems II … · International Banking and Capital Markets II LESSON 3 –Bank-based vs Market-based Financial Systems II 1 Thursday

International Banking and Capital Markets II

LESSON 3 – Bank-based vs Market-based Financial Systems II

Thursday 1st March 20181

Academic year 2017/2018


Lesson 3

Bank-Based vs Market-Based Financial Systems II

(Other players of financial markets: Financial Institutions

[UCITS, AIFMD])

Any copies must be authorised in writing by the author

[email protected]




INDEX

▪ Collective investment funds

▪ UCITS

▪ AIFMD

▪ EuVECA

▪ EuSEF

▪ ELTIF

▪ MMF

▪ References

▪ Readings




Collective investment funds

In the previous lesson we analyzed the capital markets and the bank system, now the question is:

who are the other actors in the financial markets?

Investment funds – European regulatory frameworkAn investment funds investment products created with the sole purpose of gathering investors' capital, and investing that capital collectively through a portfolio of financial instruments such as

stocks, bonds and other securities.

Investment funds play a crucial role in:a) facilitating the accumulation of personal savings, whether for major investments or for

retirement;b) making institutional and personal savings available as loans to companies and projects which

contribute to growth and jobs.

Collective investments funds

UCITS AIFMD

EuVECA

EuSEFMMF ELTIF

SICAV

AIF

SICAF




UCITS

UCITS takes its name from the EU directive (2009/65/EC) on undertakings for collective investmentin transferable securities (UCITS), the main European framework covering collective investmentschemes. This category of investments funds accounts for around 75% of all collective investmentsby small investors in Europe.

In the directive, the UCITS means an undertaking a) with the sole object of collective investment

in transferable securities or in other liquid financial assets referred to in Article 50 of capital raisedfrom the public and which operate on the principle of risk-spreading; and b) with units which are,

at the request of holders, repurchased or redeemed, directly or indirectly, out of thoseundertakings’ assets. Action taken by a UCITS to ensure that the stock exchange value of its unitsdoes not significantly vary from their net asset value shall be regarded as equivalent to suchrepurchase or redemption.

The European Commission defines the UCITS as investment vehicles that pool investors’ capitaland invest that capital collectively through a portfolio of financial instruments such as stocks,bonds and other securities.




UCITS

UCITS must substantially invest in the following eligible assets:

a. Transferable securities admitted to or dealt in on a regulated market

b. Money market instruments

c. Deposits with credit institutions

d. Closed-ended funds

e. Open-ended funds

f. Financial derivative instruments of which the underlying consists of eligible assets or interestrates, foreign exchange rates or currencies and financial indices

Non eligible assets:

Property/real estate

Commodities

Private equity

Concentration limits

No more than 10% of net assets may be invested, as non-core investments, in transferablesecurities and money market instruments that are not listed on an exchange or dealt in anotherregulated market.




UCITS

5/10/40 rule

Generally, no more than 10% of net assets of a UCITS fund can be invested in transferablesecurities or money market instruments issued by the same issuer (“10% Rule”).

✓ Where investments in transferable securities and money market instruments eachrepresent more than 5% of net assets of a fund, these investments in aggregate must not

exceed 40% (“40% Rule”) of the total net assets of the fund (“5% Rule”).

✓ The 10% Rule limit does not apply to:

o Deposits and OTC FDIs made with financial institutions subject to prudentialsupervision.

o Certain Transferable Securities.

o Investments in other UCITS funds or UCIs.

For Index replicating UCITS funds however, the 10% Rule can be raised to 20% (or, if justified, 35%)whereby the investment policy is to replicate an index recognized by the regulator.

Borrowing: UCITS are restricted from borrowing with the exception of borrowing on a temporarybasis with a limit of up to 10% of the net asset value of the fund (can exceed for the acquisition ofimmovable property essential for the direct pursuit of its business).

The UCITSs are managed by the management companies, the Italian so-called «Società digestione del risparmio» or «SGR».




UCITS

The five Europeandomiciles with the largestnet sales into UCITS areLuxembourg (EUR 75.3

billion), followed by Ireland(EUR 51.3 billion), France(EUR 25.4 billion), the UnitedKingdom (EUR 12.5 bn),and Germany (EUR 9.4 bn).

(3rd quarter 2017)

(source: http://www.efama.org)




In Italy, the UCITS name is OICVM that means «Organismi di Investimento Collettivo in ValoriMobiliari». They are a subcategory of the OICR «Organismi di Investimento Collettivo delRisparmio».

UCITS - Italy

OICR

OICVM

FIA

EuVECAEuSEFELTIFUCITS

SICAF

AIFMD

MMF

In Italy, the Directive has been transposed through the modifications to the main regulations onthe subject (http://www.consob.it/web/area-pubblica/tuf-e-regolamenti-consob):

1. «Testo Unico della Finanza» (ref. Legislative Decree n. 58 of 24 February 1998);

2. «Regolamento congiunto Banca d’Italia – Consob» (ref. Provvedimento del 19 gennaio 2015 which

repealed the former one dated 29th October 2007);

3. «Regolamento Intermediari» (ref. Regolamento Consob n. 16190/2007) e «Regolamento Emittenti»

of Consob (ref. Regolamento Consob n. 11971/1999);

4. «Regolamento sulla gestione collettiva del risparmio» of Bank of Italy and regulation of the

depositary (authorization, duties etc.) (ref. Regolamento della Banca d’Italia del 19 gennaio 2015

which repealed the former one dated 8th May 2012).

SICAV




UCITS - Italy

OICVM and SICAV FIA and SICAF

Regulation UCITS AIFMD

Type only open-ended open-ended and close-ended

Investment target only assets explicitly stated in the

Directive

wide range of assets

Investors mainly retail investors, but also

professionals

professionals (but for some type of FIA

there is the possibility to extend to

retail investors)

Differences between the types of fund.

OICVM and FIA SICAF and SICAV

Constitution Contract Company

Management The fund is not autonomous, there is

the asset management companies

that manage the fund (SGR)

They manage the capital directly

Investor Participant of the fund The investor becomes shareholder of

the companies

Asset allocation The investor CAN NOT participate to

the choices of asset allocation

The investor CAN participate to the

choices of asset allocation, because

he is a shareholder

Slide n. 12 Slide n. 18




In the European Securities and Markets Authority website (https://www.esma.europa.eu/) it is available the list of

the UCITS management companies authorised by the National Competent Authority of all the EU member

countries.

UCITS




In the Italian Capital Markets Authority website (http://www.bancaditalia.it) it is available the list of the UCITS

management companies authorised by the Italian National Competent Authority.

UCITS

https://infostat.bancaditalia.it/giava-<-public/flex/Giava/GIAVAFEInquiry.html#

https://infostat.bancaditalia.it/giava-<-public/flex/Giava/GIAVAFEInquiry.html




A case study

UCITS

Anima Magellano Anima Vespucci

Investor 2

Investor 3

Investor 1

Investor 4

Investor 5Investor 2

Investor 3

Investor 1

Investor 4

Investor 5

Global equity

market

Emerging

market equity

market

Italian

monetary

market

Euro-area

corporate

bond market

Euro-area

Government

bond market

World

Government

bond market

Emerging

market

Government

bond market

Investment Strategy Global equity

market

Emerging

market equity

market

Italian

monetary

market

Euro-area

corporate

bond market

Euro-area

Government

bond market

World

Government

bond market

Emerging market

Government bond

market

Investment Strategy

100%

15%10% 5% 5%

65%

Other not disclosed




UCITS vs US open-ended mutual fund

UCITS US open-ended mutual fund

Governing regulation UCITS Directive Investment Company Act of

1940

Key regulator(s) Regulatory authority in

country of domicile

SEC and IRS

Eligible investors All All

Key documents Prospectus, Key Investor

Information (KII) document,

financial statements

Prospectus, statement of

additional information,

financial statements

Independent

trustees/directors

No requirement Independent board of

directors required

NAV calculation and

redemption frequency

Minimum twice a month Minimum once a day (open-

ended funds)

Investment

management

agreement

Updated as needed Must be updated and

approved annually by the

board of directors/trustees

Investment liquidity No more than 10% of assets

in investments that are not

listed on an exchange or

dealt in another regulated

market

85% of investments must be

in liquid securities

Shareholder

distribution

requirements

None A fund must distribute at

least 90% of income annually

Tax treatment No tax, except for nominal

registration duties

No tax, subject to RIC

qualification tests

Multiple compartments Yes — Subfunds Yes — Multi-series trust

Multiple share classes Yes Yes

Corporations/trusts Yes Yes

UCITS US open-ended mutual fund

Structures available:

Partnerships Yes Yes

Closed-ended No Yes

Master-feeders Yes Yes

Exchange-traded Yes Yes

Diversification

requirements

Yes Yes

Service providers UCITS management

company (required for

contractual funds only),

depositary bank,

administrator, registrar and

transfer agent, domiciliation

agent, paying agents,

auditor

Investment manager,

distributor, custodian bank,

transfer and shareholder

servicing agent, fund

administrator, independent

registered public accounting

firm

Risk management Detailed requirements General requirements

Performance fees Permitted Permitted only if all investors

are “qualified clients” under

the ‘40 Act or through a

“fulcrum fee”

Borrowing/leverage

restrictions

Limited to 10% of net assets

on a temporary basis

Bank borrowing permitted

subject to 300% asset

coverage requirement

Source: European Mutual Funds, EY, 2015




AIF

Alternative Investment Funds are funds that are not regulated at EU level by the UCITS directive.They include hedge funds, private equity funds, real estate funds and a wide range of other typesof institutional funds.

Alternative investment fund managers (AIFM) is the name of the Directive 2011/61/EU (AIFMD), inwhich the European Union establishes a legal framework for the authorization, supervision and

oversight of managers of a range of alternative investment funds (AIFM), including hedge fundsand private equity.

So, the AIFMD is the regulatory framework for the non-UCITS, unless they fall under the exceptionclause, applied to the assets managed:

minimum threshold 100 Euro/M;

minimum threshold 500 Euro/M for those who a) do not use leverage and b) have a fiveyear lock-in period for their investors following the date constitution of each AIF.

Moreover, the directive lists a number of entities to which it does not apply, including:

• Holding companies (as defined in thedirective);

• Management of pension funds

• Employee participation or savings schemes

• Supranational institutions

• National central banks

• Insurance contracts




AIFM

Alternative Investment Fund Managers — Directive 2011/61/EU (http://eur-lex.europa.eu)

Passport AIFMs can ‘passport’ their services in different EU countries on the basis of a single authorisation. Once an AIFM is

authorised in one EU country and complies with the rules of the directive, the AIFM is entitled to manage or market funds to

professional investors throughout the EU.

Authorisations To operate in the EU, fund managers are required to obtain authorisation from the competent authority of their home EU

country. To obtain authorisation, AIFMs have to hold a minimum level of capital in the form of liquid or short-term assets.

Depositary AIFMs are required to ensure that the funds they manage appoint an independent depositary, for example a bank or

investment firm, that is responsible for overseeing the fund’s activities and ensuring that the fund’s assets are appropriately

protected.

Risk management

and prudential

oversight

AIFMs are required to assure the competent authority of the robustness of their internal arrangements with respect to risk

management. This includes a requirement to disclose, on a regular basis, the main markets and instruments in which they

trade, their principal exposures and their concentrations of risk.

Treatment of investors In order to encourage diligence amongst their investors, AIFMs are required to provide a clear description of their

investment policy, including descriptions of the types of assets and the use of leverage. An annual report for each financial

year has to be made available to investors on request.

Leveraged funds The directive introduces specific requirements with regard to leverage, i.e. the use of debt to finance investment.

Competent authorities have the right to set limits to leverage in order to ensure the stability of the financial system.

Private equity funds Where an AIF acquires control of a non-listed company or an issuer, the AIFM is subject to the anti-asset stripping provisions.

For a period of 2 years, the AIFM must act against any distribution, capital reduction, share redemption or acquisition of

own shares by the company.

Funds and managers

located in non-EU

countries

Subject to conditions set out in the directive, the ‘passport’ may be extended to non-EU AIFMs and to the marketing of non-

EU funds, managed by either EU or non-EU AIFMs.

Opt-outs for smaller

funds:

EU countries may choose not to apply the directive to smaller AIFMs, i.e. funds with managed assets below €100 million if

they use leverage and with assets below €500 million if they do not. Smaller funds are however subject to minimum

registration and reporting requirements.




AIFM - Italy

AIFMD provided that EU countries’ national laws must transposed the Directive.In Italy, the Directive has been transposed through the modifications to the main regulations onthe subject:

1. «Testo Unico della Finanza» (ref. Legislative Decree n. 58 of 24 february 1998);

2. «Regolamento congiunto Banca d’Italia – Consob» (ref. Provvedimento del 19 gennaio 2015

which repealed the one dated 29 ottobre 2007);

3. «Regolamento Intermediari» (ref. Regolamento Consob n. 16190/2007) e «RegolamentoEmittenti» of Consob(ref. Regolamento Consob n. 11971/1999);

4. «Regolamento sulla gestione collettiva del risparmio» of Bank of Italy and regulation ofthe depositary (authorization, duties etc.) (ref. Regolamento della Banca d’Italia del 19 gennaio

2015 which repealed the one dated 8 maggio 2012).

(http://www.consob.it/web/area-pubblica/tuf-e-regolamenti-consob)

The Italian regulations distinguish four main types of AIF:

✓ Italian open-ended or closed-ended AIF;

✓ Italian real estate AIF;

✓ Italian open-ended or closed-ended reserved AIF;

✓ Italian guaranteed Organismo di Investimento Collettivo del Risparmio (OICR).




AIFM - Italy

Italian open-ended AIF

Fund or SICAV where the investors have the right to ask the reimbursement of the share inaccordance with the method and frequency provided by the regulations and the statutes andthe offering prospectus.AIFs have fewer limits on the investment types and on the concentration of the investments thanthe UCITS (Italian OICVM)

Italian closed-ended AIF

Fund or SICAF where the investors have limitation in the reimbursement of the share and theparticipation to the fund is not continuative.

Società di Investimento a Capitale Variabile (SICAV) and Società di Investimento a Capitale Fisso(SICAF) are types of investment/management companies. The SICAV are similar to the OICVMbecause they don’t limit the reimbursement of the share («UCITS»), the SICAF are similar to theItalian closed-ended AIF («AIFMD»)Why are they different from the AIF?

FOCUS: SICAV and SICAF




1%

23% 47%

29%

Market

Cassa di previdenzaFondo pensione

Investor 7

Investor 8

Investor 6

Investor 9

SICAF and SICAV are at the same time management companies and funds. Investors

become new shareholders.

AIFM - Italy

An example of SICAF




AIFM - Italy

Italian real estate AIF

Type of Italian closed-ended AIF that invests at least 2/3 of its assets in real estate market (realestate, real estate companies, other real estate AIF).

Italian open-ended or closed-ended reserved AIF

The participation is reserved to professional investors and a non-professional investors that investat least 500 Euro/k. The non-professional investors have to release a statement where they attestto have understand the investment risks.

Italian garanteed OICR

Guaranteed OICR are open-ended or closed-end funds that guaranteed the return of theinvested capital or the recognition of a minimum return through the stipulation of specialagreements with banks, investment companies that provide the negotiation service for ownaccount, insurance companies or financial intermediaries (art. 106 TUB) having the requirementsprovided by the Bank of Italy, or through others any form of guarantee stated by the Bank of Italy.




AIFM - Italy

Some examples of AIFM and AIF

Fondo Territorio is a closed end real estate investment fund reserved for qualified investors.The Fund has been underwritten by various banking foundations interested in making real estateinvestments with the purpose of upgrading and promoting the territory. The Fund’s investmentsfocus prevalently on real estate development and/or upgrading operations, to be carried outeven on areas and buildings that are rented or which the Fund has the right to use or to exploit,regarding real estate or areas destined to be used for tourist/hotel, residential or commercialpurposes, and especially the development and upgrading of former industrial sites adjacent to orfacing onto urban or sub-urban waterfronts.

DeA Capital Real Estate sgr S.p.A. (“DeA Capital RE”) is Italy’s largest Real Estate FundManagement Company with approx. € 9.4 bln of assets under management and a market share of20%. In October 2011, as the result of the incorporation of First Atlantic RE sgr into FIMIT sgr, wascreated IDeA FIMIT sgr that, benefiting from experience of two of the main players in the Italianmarket, has become the market leader. In October 2017 IDeA FIMIT sgr changed its name to DeACapital RE. Over time, the company’s funds have attracted several primary domestic andinternational investors, including pension funds, private companies, financial institutions as well assovereign wealth funds. The Mission of the company is to develop, promote and manage realestate financial instruments to satisfy the demand of Italian and international investors, with a focuson institutional clients. DeA Capital RE specializes in core investments; investments in value addedhave also been made. DeA Capital RE pursues low levels of risk, stable cash flows, low volatility, andimplements simple financial structures

Italian closed-ended reserved real estate AIF




AIFM - Italy

Some examples of AIFM and AIF

Atlante is a closed-end alternative investment fund regulated by Italian law reserved forprofessional investors.The fund is managed by Quaestio Capital SGR S.p.A. Atlante’s investors are 67 Italian and foreignInstitutions, including banks, insurance companies, banking foundations and the Cassa Depositi ePrestiti. Atlante may invest in banks with a lower capital ratio than the minimum established in thecontext of the SREP and that therefore, upon request by the Supervisory Authority, implementinitiatives to reinforce capital by means of a share capital increase, and/or, in Non-PerformingLoans (NPLs) originating from a variety of Italian banks. A fundamental principle of the Fund is theindependence of the Asset Management Company (the SGR) management from shareholdersand investors.

Atlante Fund

Quaestio SGR is an independent Asset Management Company with an exclusively institutionalclient base, with assets under management of approximately € 10 billion.The company has a global perspective, identifying and managing the best investment ideas in itsmain markets around the world.Quaestio SGR has developed an innovative multi-manager platform, with UCITS and AIFinvestment funds that pools 30 delegated managers from some of the best Asset ManagementCompanies in the world. Moreover, thanks to advanced look-through technology, the Companyuses and can offer its customers a real time monitoring service for all investments and financial riskportfolios.

Italian closed-ended reserved AIF




In the European Securities and Markets Authority website (https://www.esma.europa.eu/) it is available the list of

the AIF management companies authorized by the National Competent Authority of all the EU member countries.

AIFM




AIFM

In the Italian Capital Markets Authority website (http://www.bancaditalia.it) it is available the list of the AIF

management companies authorized by the Italian National Competent Authority.




AIF

In the Italian Capital Markets Authority website (http://www.bancaditalia.it) it is available the list of the AIF

authorized by the Italian National Competent Authority.

Is there anything wrong?




EuVECA

The European Venture Capital Funds regulation is the Regulation (EU) No 345/2013 of theEuropean Parliament and of the Council of 17 April 2013.In order to qualify for the EuVECA label and market their funds across the EU, managers mustprove that their fund:

✓ invests 70% of the capital it receives from investors in supporting young and innovativecompanies;

✓ provides equity or quasi-equity finance (i.e. fresh capital) to these SMEs;

✓ does not use leverage (i.e. the fund is not indebted, because it does not invest more capitalthan is committed by investors);

✓ the regulation also sets out uniform quality criteria for managers of qualifying venture capitalfunds that wish to use the EuVECA label. These requirements cover everything from the waythey organize and conduct themselves to the manner in which they inform investors abouttheir activities and investment policies.

These managers must also register in the country where the fund is established and provideannual reports. The country where these funds are located is obliged to ensure all the regulation’srules are respected.

As investing in venture capital funds can be risky, the regulation defines who can invest in EuVECA:professional investors and possibly other categories such as high net worth individuals.




EuVECA

How many in Italy?




EuVECA

An example of EuVECA.

Panakes Partners is a Venture Capital investor that finances medical companies, early stage startup and SMEs, with extremely promising products and great ambition, in Europe and Israel.Thanks to our strong entrepreneurial and financial experiences we provide more than capital, and we aim to work together with entrepreneurs to develop successful businesses as an active and well-connected investor. We also have strong relationship with selected

industrial partners to help companies to accelerate their development.We seek and help to grow Medtech companies with the potential to have a positive impact on society. We believe such opportunities create the most value for all parties.From our office in Milan, Panakes is willing to back the smartest entrepreneurs with the best technologies and ideas.

“

”http://www.panakes.it/




EuSEF

European Social Entrepreneurship Funds (EuSEF) are ruled by the Regulation (EU) No 346/2013 ofthe European Parliament and of the Council of 17 April 2013.Social businesses address social objectives as their corporate aim rather than simply maximizingprofit. It is a growth sector, representing 10% of all European companies and employing over 11million people. While they often receive public support, private investments from funds that investin social entrepreneurs are vital for their success.These funds face 2 problems:

• it can be costly and difficult to set up such funds and attract investors, especially cross-border investment;

• it is not always easy for investors to identify such funds or compare the advantages ofdifferent types.

To remove these barriers, the EU has adopted legislation creating a label for European socialentrepreneurship funds, making it easier for investors to know the destination of their investments.

The label:

• makes it easier for investors to identify and to choose EuSEFs;

• helps social businesses through easier access to finance; and

• enables investment fund managers to raise finance with less cost and complexity.

Funds that market themselves using this label have to direct at least 70% of their investments tosocial businesses.




EuSEF

In addition, they have to provide key information to investors in a standardized way. Thisinformation covers areas such as:

• the fund’s social objectives;

• the social businesses it invests in; and

• how it assesses whether these businesses achieve their social goals.

Once a fund has provided the required information and meets some important conditions on itsorganization and operation, it can gather investments from across the EU without incurring majorcosts.In addition to the 70% rule, a fund manager must demonstrate good conduct of the business andeffective systems and controls, and avoid any conflict of interest. The funds are supervised by thenational authorities in the country where they are based and the label can be withdrawn if theydo not fulfil any of the essential conditions.

In 2014, the European Commission adopted an implementing regulation (Regulation (EU) No593/2014) which deals with the notification of events related to the passport of the managers ofqualifying social entrepreneurship funds and with aspects concerning the removal of a manager

of a EuSEF from the register.

As one of the measures under the Capital Markets Union initiative, the EuSEF regulation is currentlybeing revised in order to increase the take-up of social entrepreneurship funds. On July 14th 2016,the Commission submitted a proposal to the European Parliament and the Council to amend theEuSEF Regulation for adoption under the ordinary legislative procedure.




EuSEF

How many EuSEF are in Europe?




EuSEF

An example of EuSEF

Set up in 2005 as the social investment arm of The Big Issue, BigIssue Invest exists to further The Big Issue’s activities and reach byfinancing the growth of sustainable social enterprises andcharities. Our goal is to continue supporting organisations that areseeking to make a positive difference for people andcommunities across the UK.Big Issue Invest offers social enterprises, charities and profit-with-purpose businesses, loans and investment from £20,000 to £3million. We currently manage or advise on £150 million worth ofsocial funds and we have a range of funds, products andprogrammes designed to suit a variety of organisations. Theyprovide finance to organisations that create positive socialimpact. Almost all of their investees are unable to raise

mainstream finance. They have made more than 300 investmentstotalling over £30 million since 2005. Over 50% of theseorganisations work in the 25% most deprived areas of the UK. Lastyear alone, the work of these organisations benefited over 1million people across the UK. 80% of our investees became morefinancially sustainable as a result of our investment and more than

half were able to hire new staff last year.

“

”https://bigissueinvest.com/about-big-issue-invest/

We currently manage or advise on

£150 MILLION OF SOCIAL FUNDS

SINCE 2005 WE HAVE INVESTED IN OVER

300 ORGANISATIONSIN 2016 OUR INVESTEES

SUPPORTED AN ESTIMATED

1 MILLION PEOPLETHE RENTAL EXCHANGE HAS THE POTENTIAL TO

BENEFIT

3.4 MILLION SOCIAL HOUSING TENANTS




ELTIF

The European Long-term Investment (ELTIF) regulation is the Regulation (EU) No 760/2015 of theEuropean Parliament and of the Council of 29 April 2015.

ELTIFs are aimed at investment fund managers who want to provide long term investment toinstitutional and private investors across Europe. They target specific types of projects whichrequire long-term funding to develop successfully but struggle to get financing.

ELTIFs are targeted at particular types of alternative investment including:

• unlisted companies;

• debt instruments for which a buyer cannot be easily identified;

• real assets [an asset that has value due to its own substance and properties such as gold, oil orproperty] that require significant initial investment;

• small and medium sized enterprises (SMEs) with capitalizations of up to €500 million that havebeen admitted to trade on a regulated market.




Authorization: an application to become an ELTIF must include:

• the fund rules or instruments of incorporation [formal documents filed with a governmentbody to legally document the creation of a company]

• information on the identity of the proposed manager of the ELTIF and their current andprevious fund management experience and history

• information on the identity of the depositary [a bank or company which holds funds orsecurities deposited by others, and where exchanges of these securities take place]

• a description of the information to be given to investors, including the arrangements fordealing with complaints submitted by retail investors.

Investment policy

ELTIFs are subject to specific investment rules, amongst others they:

• must invest at least 70% of their capital in clearly-defined categories of eligible assets;

• are only allowed to trade up to 30% of their capital in assets other than long-terminvestments.

Different types of assets are eligible for investment including:

• real assets with a value of more than €10 million that generate an economic and socialbenefit;

• commercial property or housing that contribute to smart, sustainable and inclusivegrowth or to EU energy, regional and cohesion policies.

ELTIF




Protection of investors: The Regulation sets out rules to strengthen the protection of investors:

• the manager of the ELTIF or any distributor, should ensure that a retail investor (with aportfolio not exceeding € 500,000) does not invest in total more than 10% of the investor'sportfolio in ELTIFs;

• an ELTIF should be able to offer investors, under certain conditions, the opportunity to

redeem their units or shares before the end of the life of the fund. Those rights and theirmain features should be clearly predefined and disclosed in the rules or instruments ofincorporation of the ELTIF;

• where an ELTIF offered or placed to retail investors is due to last more than 10 years, themanager or distributor should indicate clearly in writing that the product may not besuitable if the investor cannot support a long-term investment or if they need theirinvestment to be easily redeemable.

Liability

Managers are responsible for ensuring compliance with the Regulation and for any infringement.They are also responsible for any losses or damages which result from non-compliance.

ELTIF




MMF

Money Market Funds (MMFs) provide short-term finance to financial institutions, corporations andgovernments. By providing finance to those entities, MMFs contribute to the financing of theeconomy of the Union. Those entities use their investments in MMFs as an efficient way to spreadtheir credit risk and exposure, rather than relying solely on bank deposits.

On the demand side, MMFs are short-term cash management tools that provide a high degree ofliquidity, diversification and stability of value of the principal invested, combined with a market-based yield. MMFs are mainly used by corporations seeking to invest their excess cash for a shorttime frame. MMFs, therefore, represent a crucial link bringing together demands and offers ofshort-term cash.

A collective investment undertaking that requires authorization as a UCITS under Directive2009/65/EC and as an MMF under this Regulation for the first time shall be authorized as an MMFas part of the UCITS authorization procedure pursuant to Directive 2009/65/EC.

A collective investment undertaking that is an AIF and that requires authorization as an MMFunder this Regulation shall be authorized as an MMF pursuant to the authorization procedure laiddown in Article 5.

Total European money fund assets came to over US$1.2 trillion as at the end of 2016.

In the US, assets in SEC Rule 2a-7 money market funds came to about US$2.7 trillion at the samedate.

US money market fund reforms were concluded in October 2016. European money market fundreforms were published in final form on 30 June 2017, with a final implementation date of 21January 2019. (source: https://www.immfa.org/)




MMF

An example of MMFs.




MMF

An example of MMFs.




References/readings

http://www.efama.org.

http://www.assogestioni.it

http://www.consob.it

https://www.bancaditalia.it

https://infostat.bancaditalia.it

http://www.mbres.it

https://www.esma.europa.eu

https://www.immfa.org

http://eur-lex.europa.eu

https://www2.deloitte.com

http://www.ey.com

https://www.blackrock.com

http://www.deacapitalre.com

http://www.panakes.it/

https://bigissueinvest.com/

http://www.4aim.it/

https://www.animasgr.it/it/Pagine/Default.aspx

European Regulation

https://ec.europa.eu/info/business-economy-euro/growth-and-investment/investment-funds_en

Italian Regulation [ENG]

http://www.consob.it/web/consob-and-its-activities/laws-and-regulations

http://www.efama.org/

http://www.assogestioni.it/

http://www.consob.it/

https://www.bancaditalia.it/

https://infostat.bancaditalia.it/

http://www.mbres.it/

https://www.esma.europa.eu/

https://www.immfa.org/

http://eur-lex.europa.eu/

https://www2.deloitte.com/

http://www.ey.com/

https://www.blackrock.com/

http://www.deacapitalre.com/

http://www.panakes.it/

https://bigissueinvest.com/

http://www.4aim.it/

https://www.animasgr.it/it/Pagine/Default.aspx

https://ec.europa.eu/info/business-economy-euro/growth-and-investment/investment-funds_en

http://www.consob.it/web/consob-and-its-activities/laws-and-regulations




References

1. Hedge funds bet against some Italian banks on the rise

https://www.reuters.com/article/us-hedgefunds-italy-banks/hedge-funds-bet-against-some-italian-banks-on-the-rise-idUSKBN1FM2F5

2. Bridgewater Triples Bets Against Italian Firms to $3 Billion

https://www.bloomberg.com/news/articles/2018-02-01/bridgewater-triples-wagers-against-italian-firms-to-3-billion

3. UCITS IV – Master-feeder structures

https://www.pwc.lu/en/asset-management/docs/pwc-amprofile-ucits-master-feeder.pdf

4. Luxembourg Thrives As an Eden for Funds

http://www.nytimes.com/1993/11/13/your-money/13iht-mrlu.html [1993]

5. Tax Battles: the dangerous global race to the bottom on corporate tax

https://www.oxfam.org/en/research/tax-battles-dangerous-global-race-bottom-corporate-tax

6. Research & Statistics on Funds and Asset Management

http://www.efama.org/statistics/sitepages/european%20quarterly%20statistical%20release.aspx

7. Amended EuVECA Regulation and EuSEF Regulation in force from 1 March 2018

https://www.lexology.com/library/detail.aspx?g=99a1a736-abaa-4d29-9096-fe05475d9278

https://www.reuters.com/article/us-hedgefunds-italy-banks/hedge-funds-bet-against-some-italian-banks-on-the-rise-idUSKBN1FM2F5

https://www.bloomberg.com/news/articles/2018-02-01/bridgewater-triples-wagers-against-italian-firms-to-3-billion

https://www.pwc.lu/en/asset-management/docs/pwc-amprofile-ucits-master-feeder.pdf

http://www.nytimes.com/1993/11/13/your-money/13iht-mrlu.html

https://www.oxfam.org/en/research/tax-battles-dangerous-global-race-bottom-corporate-tax

http://www.efama.org/statistics/sitepages/european quarterly statistical release.aspx

https://www.lexology.com/library/detail.aspx?g=99a1a736-abaa-4d29-9096-fe05475d9278

Documents

Lesson 3 Bank-Based vs Market-Based Financial Systems II … · International Banking and Capital Markets II LESSON 3 –Bank-based vs Market-based Financial Systems II 1 Thursday