Competing Globally in the Asset Management Industry October 19, 2010
advertisement
Competing Globally in the Asset Management Industry October 19, 2010 Copyright © 2010 by K&L Gates LLP. All rights reserved. Presenters Stuart Fross Boston stuart.fross@klgates.com Tel: 617.261.3135 Rebecca O’Brien Radford Boston rebecca.radford@klgates.com Tel: 617.261.3244 Choo Lye Tan Hong Kong, Singapore choolye.tan@klgates.com Tel: Hong Kong +852.2230.3528 Tel: Singapore +65.6507.8100 Christina Yang Taipei christina.yang@klgates.com Tel: +886.2.2326.5198 1 Copyright © 2010 by K&L Gates LLP. All rights reserved. 3 Agenda 1. Introduction 2. General Issues When Competing Globally in the Asset Management Industry 3. Spotlight on Hong Kong 4. Focus on Taiwan 5. Eye on Europe 4 Introduction to Global Asset Management We will follow the “clock” starting our agenda with Asia, and then moving to Europe (with a little left over for the Americas) Our premise is that US Global money managers are focusing on Greater China as a high GDP grower. Are Hong Kong and Taiwan China portals? Both Hong Kong and Taiwan offer proven domestic markets Both offer environments kind to global managers Europe is “a tale of two cities” Latin America offers interesting markets too But, first a few thoughts before we leave the US… 5 General Issues When Competing Globally in the Asset Management Industry What conducts are likely to trigger the application of foreign securities laws? “Conducting Business” in a foreign country Purchasing foreign securities Offering U.S. securities to foreign investors 6 Significant Shareholdings What are the triggers? How is ownership calculated? Who must file? When and to whom? 7 Advisory Services/Marketing Country-Specific Rules Is there a registration requirement? Will it be triggered? Exemptions available? 8 Private Placements Definition of “offer” Definition of private placement 9 Spotlight on Hong Kong (and the PRC) 10 The People’s Republic of China 11 Why PRC? 1.3 billion population 12 13 Foreign funds in the PRC QFII – Qualified Foreign Institutional Investor permitted to invest in PRC securities must use PRC broker for transactions 14 Problems with the PRC Financial and legal infrastructure still catching up Unskilled employees Unfamiliar and highly complex legal system Necessity for strong local connections Access to PRC investors restricted to passive marketing and securities licenses are not granted to foreign entities 15 Problems with the PRC (cont) Restrictions on outbound investments by PRC residents Prohibition on active marketing of PRC investors without license 16 The Hong Kong Special Administrative Region of the People’s Republic of China 17 Why Hong Kong? Existing experience Trilingual sophisticated employee base Client base English common law system Strong and sophisticated advisory support 18 Why Hong Kong? Unique selling point Gateway to PRC Fastest growing number of new millionaires Converging point in Asia for Western funds professionals Commonwealth, “safe-haven” perception + access to PRC market + access to beneficial “local” PRC benefits 19 Access to PRC capital Outbound transfer of funds of PRC investors located in PRC are highly restricted US $50,000 limit p.a. + documentation + acceptable reason for use Back-to-back arrangements between banks with PRC and HK branches Renminbi (RMB) is freely exchanged for other currencies in in HK Internet “marketing” 20 Structured Product Distribution Selected Asian Securities Regulatory Regimes Ho n g Ko n g Sin g ap o re Ma lay sia L e g is latio n Se cur itie s an d F utu res O rd in an ce Se cu ritie s an d F utu res A ct Sec uri ti es C omm issi on Act 19 93 R eg u lat o ry A u th o rity R eg istra r of Co mpa ni es R eg istra r of Co mpa ni es a nd Bu sin e sses Co mpa ni e s C om miss io n of Mal ay sia Mo ne tary A utho rity o f Si ng ap ore Mi ni stry of F in an ce Sec uri ti es C omm issi on Ye s un le ss exe mp ted – no d istin ctio n b etwe en pri vate a nd p ub li c o ffe r Yes u nl es s e xe mpte d Se cur itie s an d F utu res C om mi ssi on D o es an o ffer o f s h ar es in th e ju ris d ic tio n r eq u ire a p ro sp e ct us an d r eg is tra tio n ? Ye s un le ss exe mp te d D ef in itio n o f o ffe r o f s h are s to th e p u b lic N ot de fi ne d b ut wi th ame nd me nt to C om p an ie s O rdi na nce in 2 00 4, the re i s gre ate r c ertai nty a s to wh at co nsti tu tes a p riv ate o ffe r R eg istra ti on wi th Re gi strar o f C om p an ie s R eg istra ti on wi th M on e ta ry Au tho rity o f Si ng ap ore N ot de fine d i n SF A a nd , the re fo re, d ep en de nt on case l aw Re gi stratio n w ith th e Re gi strar o f C om p an ie s an d th e Se cu ritie s Co mm i ssi on No t stri ctly d efin ed i n SC A 21 21 Structured Product Distribution Selected Asian Securities Regulatory Regimes Hong Kong R ele va nt Ex e mptions (i ) Pr ofes sio na l in ves to rs (i i) Pr iva te iss ues ( no t b ein g ca lcu la ted to r esu lt in th e se cu ritie s be com in g av ail ab le to p er son s othe r tha n tho se to re cei vin g th e offer ) (i ii) Offer to n ot mor e tha n 5 0 p erso n s (i v) Offer w he re to ta l co nsi de ratio n p aya bl e for th e se curi ti es i s H K$5 ,00 0,0 00 ( US$ 64 0,0 00 ) o r le ss Singapore (i ) Sma ll offer e xemp tio n (to ta l a mou nt rai se d du rin g a 12mo nth p eri o d mus t n ot be mo re tha n S $5 mi ll io n) (i i) Pri va te pla ce men t e xe mpti on (o ffe r to no t mo re th an 50 p erso ns i n a ny 12 mon th p eri od ) (i ii) Offers fo r n o co nsi de ra ti on (i v) Offer to i nstitu ti on al o r a ccre dite d in ve stors Se cur itie s an d Futu res C ommi ssi on rese rve s th e ri gh t to e xemp t p a rti cu lar o ffers (i) Offe r m ad e e xclu siv el y to pe rson s ou tsid e Ma la ysia (ii ) Offe r to de al er, lic en sed or e xemp ted fu nd man ag er u nd er the Secu ri ti es Ind u stry A ct 19 83 (ii i) Offe r w he re th e ag gre ga te con si de ratio n pa yab le i s no t l ess th an RM2 50 ,00 0 (U S$7 0,0 00 ) (iv) Offe r to i nd ivi du al s wh os e to tal n et pe rso na l as sets exce ed s RM 3,0 00 ,0 00 (US$ 8 60 ,0 00 ) (v) Offer w he re the min imu m d en omi na tio n of o r co ns ide ra ti on pa yab le fo r, th e se cu ritie s is n ot le ss th an H K$5 0 0,00 0 (U S$ 64 ,0 00 ) Othe r c onsider at ions Ma lay sia Mo ne tary A utho rity o f Si ng ap ore re se rves the rig ht to e xemp t p arti cul ar offe rs App ro val o f S ecu riti es Co mmi ssio n g en era ll y als o req ui red fo r an y offer o f sha res i n Ma la ysi a 22 22 Securities industry in Hong Kong Regulated primarily by the Securities and Futures Commission (“SFC”) Code on Unit Trusts and Mutual Funds Authorization of Funds Licensing of securities businesses The Stock Exchange of Hong Kong Limited Only relevant to funds which want to list their shares in Hong Kong Disclosure-based regulatory regime 23 Licensing in Hong Kong Securities licensing will be required from the SFC if: you carry on business in a regulated activity or hold yourself out as carrying on business in a regulated activity; OR you actively market, whether by yourself or another person on your behalf and whether in Hong Kong or from a place outside Hong Kong, to the public any services that you provide which would constitute a regulated activity if provided in Hong Kong; OR you are an individual performing a regulated function for your principal which is a licensed corporation in relation to a regulated activity carried on as a business or you hold yourself out as performing such function. 24 Regulated activities: Type 1 - Dealing in securities Type 2 - Dealing in futures contracts Type 3 - Leveraged foreign exchange trading Type 4 - Advising on securities Type 5 - Advising on futures contracts Type 6 - Advising on corporate finance Type 7 - Providing automated trading services Type 8 - Securities margin financing Type 9 - Asset management Both the company and the individuals within the company who will be providing those services must be licensed 25 Available licenses Temporary Provisional Permanent Application for a Securities License A minimum of 15 weeks, not including preparation time Extensive information on the Group required for a permanent license 26 Anti-money laundering and Know-Your-Client requirements Must meet SFC requirements Self-regulation 27 Unique features of the Hong Kong securities market Use of offshore jurisdictions Use of corporate structure vs LP-GP structure 28 Recent developments in Hong Kong More sophisticated products Low risk funds (bond or money market funds) REITS Exchange traded funds Hedge funds Offering of hedge funds to retail investors Private equity funds Specialized property funds Japanese YKTK structures Closed-ended property funds 29 Recent developments in Hong Kong (cont) Sector-focused funds Shariah-compliant funds to access Middle East capital Outsourcing of non-core competencies Stronger regulation of funds Change in approach from fee-driven to investordriven Alignment of investor’s interests with manager’s interests Structure – corporate vs. GP/LP partnership Active management of investment assets 30 Recent developments in Hong Kong (cont) Smaller fund sizes – US$50 million Licensing of investment managers and advisers – depends on target investor market Regulation of funds - enforcement by securities regulators Use of internet for marketing purposes Private banking/wealth management services 31 Focus on Taiwan 32 Mutual Funds Market in Taiwan Onshore Mutual Funds Securities Investment Trust Funds By Securities Investment Trust Enterprises (“SITEs”) Futures Trust Funds – By Futures Trust Enterprises Offshore Funds Securities as Main Investment Target Futures, Indexes, Commodities, Derivatives or Other Investment Targets 33 Mutual Funds Market in Taiwan Offshore Funds Securities as Main Investment Target Registration /Post Filing System Futures, Index, Commodity, Derivatives or Others as Investment Targets 34 Mutual Funds Market in Taiwan Publicly Offered Taiwan Funds 542 Funds, AUM US$58.86 Billion (as of Aug.2010) Privately Placed Taiwan Funds 115 Funds, AUM US$79.36 Million (as of Aug.2010) Future Trust Funds 3 Funds, AUM US$ 188.3 Million (as of Sep. 2010) Registered Offshore Funds 1024 Funds, Investment by Taiwan: US$74.3 Billion Investment by insurance company’s products is not included 35 Recent Developments - Offshore Funds Registration Fewer Funds In One Application Longer Review Process Application for Special Waiver on Derivatives Restrictions 36 New Amendments to Regulations Changes to Qualifications for Registered Funds Certain Changes regarding Private Placement Disclosure of Fees Payable to Distributors Additional Events Requiring Follow-Up Notice/Regulator’s Prior Approval 37 New Business Opportunities Cooperation Agreement Between Taiwan & Governments of Luxembourg/Ireland Introducing Different Fund Products into the Market Waiver of One Year Establishment Requirement No Restriction on Derivatives Investment 38 New Business Opportunities Impact of Economic Cooperation Framework Agreement Lifting of Restrictions on Funds’ Investment in China Distribution of Taiwan Funds in China & of China Funds in Taiwan Providing Discretionary Advisory Services to China Individuals, Legal Entities Through Taiwan Qualified Entities 39 Eye on Europe 40 Competing Globally Competing in Europe in Retail and Institutional Markets 41 UCITS IV: Impact on Global Distribution Cross-border registration of funds increasing UCITS IV Directive seeks to improve upon already widelyaccepted UCITS III Success is subject to some obstacles 42 UCITS IV: Making Strides… New Management Company Passport Allows fund manager to be outside of fund’s home state Notification Procedures Simplified and Expedited UCITS must notify home state of intent to register in host states (i.e., no notification to host state) and submit file Marketing begins immediately after home state transmits notification file to host state (i.e., no waiting period) Key Investor Information Document (“KIID”) Replaces Simplified Prospectus Short 2-page fact sheet without jargon for investors Improved Framework for Merger of UCITS Allows mergers for UCITS regardless of size New Provisions Allow Master-Feeder Structures 43 UCITS IV: … And Stepping Backwards. New Management Company Passport May result in fund’s double taxation if UCITS also becomes tax resident of state where Manager is located Notification Procedures Radically Simplified and Expedited But host state may impose undetermined local marketing regulations after notification and marketing has commenced Key Investor Information Document (“KIID”) Replaces Simplified Prospectus Improved Framework for Merger of UCITS Some Member States impose taxation at investor level Merger costs absorbed by fund manager, not either fund New Provisions Allow Master-Feeder Structures Withholding tax and/or capital gains tax on master-feeder transactions 44 UCITS IV: Non-EU Distribution No passporting option, so funds must comply with local laws UCITS can be qualified for distribution very widely (50 countries) Local laws may mean inconsistent compliance rules Local tax laws may mean disincentives for establishing non-EU funds Local laws may mean disincentives for global operations Rules on inducements can be inconsistent UK Retail Distribution Review Non-EU countries may not accept KID E.g., Synthetic risk calculation based on previous five years 45 Competing in Europe: the AIFM Directive First draft of the Alternative Investment Fund Manager Directive was proposed in April 2009 in response to series of vulnerabilities in the global financial system which were exposed by the financial crisis. Effectively, the proposed Directive sought to regulate all EU managers of investment funds that were not regulated under the UCITS Directive and those non-EU managers who market their funds within the EU. The Directive provides the principals under which qualifying AIFMs are to be regulated. The Directive is currently working its way through the European legislative process with the final Directive expected to come into force in 2012. 46 AIFM: Update “Trialogue” discussions between ECON, the Belgian Presidency and EC have restarted Belgium, which holds the rotating EU Council Presidency, has produced a new October 7th compromise text Key Developments in Belgium Compromise Text Depositaries Prime brokers Delegation Leverage Remuneration Third Country Rules Process is set to continue into October 47 Competing Globally Institutional Markets: the UCITS alternative Access the benefits of Hedge Funds strategies, but with lower minimum investment amounts European Passport Cross border distribution beyond the EU such as Asia and Latin America Custodian Bank responsibility Frequency of NAV calculation (every 15 days or more) Redemption period = NAV calculation date Greater level of regulation compared to offshore funds Transparency – UCITS III offer clients comprehensive reporting Out of the scope of AIFM Directive 48 Questions and Answers 49 Contact Information Stuart Fross Boston stuart.fross@klgates.com Tel: 617.261.3135 Rebecca O’Brien Radford Boston rebecca.radford@klgates.com Tel: 617.261.3244 Choo Lye Tan Hong Kong, Singapore choolye.tan@klgates.com Tel: Hong Kong +852.2230.3528 Tel: Singapore +65.6507.8100 Christina Yang Taipei christina.yang@klgates.com Tel: +886.2.2326.5198 50
