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
Copyright © 2012 by K&L Gates LLP. All rights reserved.
1
Competing globally in Europe
Sean Donovan-Smith
Tel: 44.(0)20.7360.8202
sean.donovan-smith@klgates.com
K&L Gates office locations in Europe
2
Competing globally in Europe
Key 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
3
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 a
harmonized 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
4
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
5
Permitted Investments for UK Schemes
UCITS
Non-UCITS Retail Scheme
QIS
Allowed
Max
Allowed
Max
Allowed
Max
Approved Securities
Yes
None
Yes
None
Yes
None
Unapproved Securities
Yes
10%
Yes
20%
Yes
None
Government and other
public securities
Yes
None
Yes
None
Yes
None
Other UCITS
Yes
None
Yes
None
Yes
None
Other CIS
Yes
30%
Yes
None
Yes
None
Warrants
Yes
None
Yes
None
Yes
None
Investment Trusts
Yes
None
Yes
None
Yes
None
Deposits
Yes
None
Yes
None
Yes
None
Derivatives
Yes
None
Yes
None
Yes
None
Real Estate
No
Nil
Yes
None
Yes
None
Gold
No
Nil
Yes
None
Yes
None
Borrowing
Yes
10%
Yes
10%
Yes
100%
Investment
6
Fund Structures: Self-Managed UCITS Investment
Company
Investment
Company
Investment Manager
Distributor
Investment Advisor
Sub-Distributor
Administrator /
Transfer Agency
Custodian
Global Custodian
7
Fund Structures: UCITS Investment Company with
Management Company
Investment
Company
Management
Company
Investment Manager
Distributor
Investment Advisor
Custodian
Administrator /
Transfer Agency
Global Custodian
Sub-Distributor
8
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
9
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
10
Developments in the UCITS industry
Stuart F. Fross
Tel: 617.261.3135
Stuart.fross@klgates.com
11
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
12
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”
13
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
14
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 subdoc

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
15
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)
16
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
17
Structuring Private Funds for European Investors
- Regulatory Considerations
Private 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
18
Alternative Investment Fund Managers Directive
Basics

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
19
Alternative Investment Fund Managers Directive
Basics
 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 nonEU jurisdiction complying with various ‘equivalency’
requirements)
20
AIFMD Impact On US Money Managers
1. 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
21
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
22
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
investors
Or
 AIFMD could inhibit distribution in Europe over time by US managers if
delegation of investment discretion is prohibited and national private
placements are restricted
23
Conclusion
 UCITS changing – investment range could be narrowed,
remuneration rules introduced, some degree of harmonization with
AFIMD 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
24
Competing globally in Asia
Tan Choo Lye
Tel: 852.2230.3528
choolye.tan@klgates.com
25
26
27
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)
28
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.
29
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
30
Know your market
Market 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
31
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
32
Global Equity Ownership by Sector excluding Asia
33
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
34
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
35
Know Your Product

Sophisticated investors who want to know strategic
differentiators upfront

USP – unique selling points

Flexibility when dealing with mandate restrictions
36
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
37
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
38
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
39
Know your limits
 Reverse solicitation
 Unintended solicitation
 Dealing with sovereign wealth funds
40
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
41
Know your investments
Where 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
42
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
43
Know your competitors
What 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
44
Know your competitors
What 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
45
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
46
Hedge Fund Opportunities in China
Nicholas S. Hodge
Tel: 617.261.3210
nicholas.hodge@klgates.com
47
Hedge Fund Opportunities in China
 Inbound – Direct investment in the securities of
Chinese companies
 Outbound – Managing QDIIs
 Outbound – Offering hedge fund interests into China
48
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.
49
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.
50
Hedge Fund Opportunities in China
Outbound

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 foreign
financial 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.
51
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.
52
10 September 2012
Practice Group:
Investment
Management, Hedge
Funds and
Alternative
Investments
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
Increasing Investor Disclosure Requirements and
Restrictions for UCITS Funds
 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.
2
Increasing Investor Disclosure Requirements and
Restrictions for UCITS Funds
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.
3
Increasing Investor Disclosure Requirements and
Restrictions for UCITS Funds
Author:
Sean Donovan-Smith
sean.donovansmith@klgates.com
+44 (0)20 7360 8202
Contacts:
Martin Cornish
Phillip Morgan
Alice Bell
martin.cornish@klgates.com
+44 (0)20 7360 8162
phillip.morgan@klgates.com
+44 (0)20 7360 8123
alice.bell@klgates.com
+44 (0)20 7360 8304
4
Sean Donovan-Smith
Partner
London
T +44 (0)20 7360 8202
F +44 (0)20 7648 9001
sean.donovan-smith@klgates.com
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)
 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)
2
Sean Donovan-Smith (continued)
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)
3
Stuart E. Fross
Partner
Boston
T 617.261.3135
F 617.261.3175
stuart.fross@klgates.com
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
nicholas.hodge@klgates.com
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 19921994
 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
choolye.tan@klgates.com
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)
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
2
Choo Lye Tan (continued)
 Advising several private equity fund managers in the establishment, management and ongoing 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 intraassets 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
3