Competing Globally in the
Asset Management Industry
Martin W. Cornish, Partner, K&L Gates, London
Stuart E. Fross, Partner, K&L Gates, Boston
Nicholas S. Hodge, Partner, K&L Gates, Boston
Choo Lye Tan, Partner, K&L Gates, Hong Kong
October 25th, 2011
Copyright © 2010 by K&L Gates LLP. All rights reserved.
MARKETING INVESTMENT
FUNDS IN ASIA
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ASIA
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HONG KONG
SINGAPORE
JAPAN
TAIWAN
PRC
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Unique Selling Points for Various Jurisdictions
Hong Kong
 Existing experience
 Trilingual sophisticated employee base
 Client base
 English common law system
 Strong and sophisticated advisory support
 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
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Unique Selling Points for Various Jurisdictions
Singapore
 Transparent yet flexible regulatory environment
 Skilled multi-lingual workforce
 Exemptions for boutique fund managers and representatives of
financial advisors
 Low tax rates, industry-specific tax rates
 Strategic location for South Asia initiatives
 Strong government support
 Outstanding product innovation
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Unique Selling Points for Various Jurisdictions
Japan
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Second largest market
Access to Japanese pension funds
High purchasing power
Access to East Asia markets
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Unique Selling Points for Various Jurisdictions
Taiwan
 Cooperation Agreement Between Taiwan & Governments of
Luxembourg/Ireland
 Impact of Economic Cooperation Framework Agreement
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Marketing of Funds in Asia
Hong Kong
Singapore
Japan
Taiwan
PRC
Regulatory
Authorities
Securities and
Futures
Commission (SFC)
Monetary Authority of
Singapore (MAS)
Securities and
Exchange
Surveillance
Commission
(SESC)
Financial
Supervisory
Commission
China Securities
Regulatory
Commission
(CSRC)
Legal System
English Common
Law
English Common
Law
Civil Law
Civil Law
Civil Law
Foreign
Registration
Yes
Yes
Yes
Yes
No such
registration
available
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Marketing of Funds in Asia
Hong Kong
Singapore
Japan
Taiwan
PRC
Exchange
Control
No
No
No
Yes
Yes
Licensing
Yes
Yes
Yes
Yes
Yes
Exemptions
/ Avoidance
-Professional
Investors for
Type 1
activity only
-Incidental
exemptions
- Group
company
exemption
Any bank or
financial
institution or
such other
person or class
of persons in
respect of any
regulated
activity as may
be exempted by
the Authority
Complete exemption where
-Less than ten Qualified
Institutional Investors (“QIIs”) who
are Japanese; AND
-the QIIs account for less than
one-third of the contributions
raised
Exempted but required to file a
notification
At least one Japanese QII and
less than fifty Japanese non-QII’s
NO restriction on transfer of
partnership interests required but
must monitor transfers to ensure
that there is always at least one
Japanese QII and not more than
forty-nine Japanese non-QII’s
N/A
N/A
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Marketing of Funds in Asia
Hong Kong
Costs
Start-up
requirements
Application
Cost
Time
Singapore
US$3,500 – US$
5,000
about
US$1,218 –
US$4,060
about US$610 –
US$16,668 per
Regulated
Activity
about US $
1,624 – US $
6,496
Per
Regulated
Activity
15 weeks
Depends
Japan
Taiwan
PRC
US$3,000 –
US$5,000
Various
N/A
6 – 9 months
(Type 1 –
Investment
Management )
3 – 6 moths
(Type 2 –
Investment
Advisory and
Agency)
3-6
months
(offshore
funds)
1-3
months
(0nshore
funds)
Various
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Marketing of Funds in Asia
Prospectus
Requirements
Hong Kong
Singapore
Japan
Yes
Exemptions
from prospectus
requirements
Safe Harbour
Exemptions
Exclusions in
relation to
structured
products (came
into effect 13
Yes
Exemptions from
prospectus
requirements
Issue or transfer for
no consideration
(section 272 SFA)
Small offers (total
amount raised in 12
months is not more
than S$5 million or
equivalent or such
other amount as
may be approved by
Authority)
Private placement
Offers to institutional
investors
Yes
Securities
registration
statement
(“SRS”) must be
filed with the
Kanto Local
Finance Bureau
SRS is for filing
purposes only; a
Japanese
language
prospectus is
prepared for
Japanese
investors which is
generally
May 2011)
Taiwan
Yes
PRC
Yes
identical to SRS
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Marketing of Funds in Asia
Liquidity
Requirements
Hong Kong
Singapore
Japan
Taiwan
PRC
Paid-up
capital:
about US$
642,425 – US
$3,855,554
Liquid Capital
about
US$12,848 –
US$1,927,277
Dealing in Securities –about
US$203,004 –
US$4,040,078
Trading in Futures Contracts
about US$203,004 – US$
4,040,078
Trading in Commodities
Futures Contracts about
US$203,004 – US$812,017
Fund Management about
US$203,004 – US$812,017
Other Regulated Activities
about US$203,004 –
US$812,017
Minimum
of about
US$620,0
00 and
greater
than 120%
solvency
ratio
No special
requirements
for offshore
funds
* Note:
For onshore
funds, there
are various
minimum
liquidity
assets
requirements
for different
type of the
No special
Requirements
funds
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Marketing of Funds in Asia
Hong Kong
Tax
Special
Requirements
16.5%
Singapore
17%
Japan
< about
US$49,849 –
24.87%
≥ about
US$49,849 26.48%
< about
US$99,697 26.48%
> about
US$99,697 –
40.87%
Taiwan
17%
PRC
25%
Outbound Investment
restriction
Foreign Exchange Control
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Marketing of Funds in Asia
General principles for Hong Kong and Singapore
• Licensing by the securities regulators for the act
of marketing
• Offer Registration for the offers of the units
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Hong Kong
What are regulated activities?
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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
Type 10 – Credit ratings
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Hong Kong
Meaning of “active marketing”
Meaning of “public in Hong Kong”
 A section of the public
 More than 50 persons – from the Companies Ordinance
Meaning of “business”
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Hong Kong
Relevant Licensing Exemptions
 Professional Investors for Type 1 activity only
 Incidental exemptions
 Group company exemption – for Types 4, 5, 6 and 9 only
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Hong Kong
Offer Registration
Prospectus Registration & Requirements
Exemptions from prospectus requirements
Effect of legends
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Hong Kong
Authorization of collective investment schemes in
Hong Kong
• May take up to 12 months
• Recognised jurisdiction schemes
• UCITS IV
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Singapore
Licensing

Financial Advisers Act license is required for the following activities : advising others concerning any investment product;
 issuing or promulgating analyses or reports concerning any investment
product;
 marketing of any collective investment scheme including unit trusts; and
 arranging of any contract of insurance in respect of life policies.
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Securities, futures and fund management licenses under the Securities And
Futures Act
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Exemptions
 Exempt persons
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Single licensing regime
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Singapore
Offer registration
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Offers in Singapore
 Prospectus Requirements
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Exemptions from prospectus requirements
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Singapore
Authorization of collective investment schemes in
Singapore
• Not less than 24 days for a regular fund, 48 days for an unusual
fund
• Recognised jurisdiction schemes
• Tax benefits on income and dividends to shareholders
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Japan
• Registration for :• Solicitation for the act of marketing
• Investment Management for the business of
offering and marketing
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Japan
Solicitation
•Solicitation/Marketing of units to the public in Japan
generally prohibited unless the marketing entity is a
financial institutions firm registered to engage in such
businesses
•No fixed definition of “solicitation”
•Includes targetting Japanese investors outside Japan
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Japan
•Exemptions
• Appropriately-authorised entity in Japan
conducts marketing on its behalf
• More than 1 QII but less than fifty non-QII’s
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Japan
Investment Management
•Registration under FIEL generally required
•Exemption
• Complete exemption where less than ten
Qualified Institutional Investors (“QIIs”) who are
Japanese; AND the QIIs account for less than
one-third of the contributions raised
• Partial exemption requiring notification only
where more than 1 QII but less than fifty nonQII’s
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Japan
Offers where registration is required
•Small number private placement
•Professional private placement
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Japan
•Authorisation of UCITS
• Prospectus registration
• Language requirements
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Taiwan
Solicitation
 No direct prohibition
 However, solicitation may constitute a business
activity which requires : Taiwan-registered company (ROC Company Law
 Approval by Financial Supervisory Commission
under Securities Investment Trust & Consulting
Act
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Taiwan
Offer Registration
Offshore Funds (Public Offer)
 Registration with regulator
 Appointment of
 Master Agent
 Distributor
 Prospectus
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Taiwan
Structured Note Products
 Requirement for local office
 No prospectus required
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PRC
• No specific law, prohibition or regulation on
marketing of foreign funds on a private basis
• Marketing may constitute a business activity for
which regulation is extensive
• Public offers subject to the authority of
• China Securities Regulatory Commission; and
• Ministry of Commerce
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PRC
• Public offers of securities require a PRCincorporated fund manager
• Joint venture with a PRC entity is necessary as
foreign ownership cannot exceed 49%
• Foreign ownership must be from a foreign entity
approved by CSRC
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PRC
• Outbound funds of PRC investors is heavily
restricted
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Considerations
Short or long-term?
Where are your proposed investors based?
Costs?
What products are you marketing?
What is the objective of your fund?
Sector/region/product-based?
 Living standards
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MARKETING INVESTMENT
FUNDS IN EUROPE
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Introduction
• Structuring Funds for European Investors
• UCITS
• Closed End Funds
• Alternative Investment Fund Managers Directive
• Marketing Strategies Post 2013
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Structuring Funds for European Investors
• Optimal structure depends on nature of underlying
investments and investment strategy; and jurisdiction and
type of underlying investor
• ‘Europe’ = 25 plus jurisdictions so analysis is very complex
• Real Estate/PE Funds typically use LPs
• Retail ‘long only’ and hedge funds typically use corporate
vehicles
• But detailed analysis driven by tax and regulatory
considerations in each case
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Structuring Funds for European Investors
- Tax Considerations
Tax:
- natural capital gains flow-through for Real Estate/PE
Funds via LP structures
- Use of DTTs – common issue for long only funds and
especially certain emerging market funds – Russia,
India, Brazil
- Use of ‘blocker corporations’ to shield trading
income/convert income into capital gains – common
issue for hedge funds
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Structuring Funds for European Investors
- Tax Considerations
• European jurisdictions have no ‘check the box’ elections
(unlike the U.S.) to treat corporations as transparent
• But several European jurisdictions do have antiavoidance provisions which impute liability to tax on a
current year basis; deem capital gains to be liable to
income tax; and/or impose surcharges etc.
• E.g. UK Offshore Funds Rules; and German
Investment Tax Act
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UCITS
• Open ended, publicly marketable EU funds
• Exempted from AIFMD
• Restricted to ‘listed tradable securities – so no PE
or Real Estate Funds
• Hedge Funds - ‘Newcits’
• Eligible assets rules – relevant to hedge funds and
hedge fund of funds
• UCITS IV:
- Procedures for mergers of UCITS funds
- Master feeders available for first time
- Standardised ‘Key Investor Information Document’
- Management Company passport
- Simplified/improved passporting mechanisms
• UCITS V
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Closed End Funds
• Caught by AIFMD
• But can be marketed publicly under Prospectus
Directive if compliant – i.e. separate from AIFMD
passport and therefore to the retail public
• May be appropriate for fund of funds, PE, Real
Estate and other more illiquid strategies
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Structuring Funds for European Investors
- Regulatory Considerations
• Most Jurisdictions require marketing to be conducted by
EU authorised marketers
• Some allow non-EU persons to market but marketing
then more restricted e.g. Belgium (but must register
locally; UK
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Structuring 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
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Alternative Investment Fund Managers Directive
Basics
• EU 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
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Alternative Investment Fund Managers Directive
Basics
• From 2015 non-EU AIFMs 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 non-EU jurisdiction
complying with various ‘equivalency’ requirements)
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AIFMD Strategies
Comply from 2013
• Passport – will allow active/broader marketing into Denmark,
France, Italy, Norway and Spain from 2013
• But passport may restrict marketing in Belgium, Holland,
Germany, UK – and perhaps Switzerland – if restricted to
‘professional investors’
• EU jurisdictions permitted to allow marketing to ‘retail investors’
but to impose more strict requirements
• Passport where more attractive, privately place elsewhere?
• EU investor preference for regulated funds?
• And tax disadvantages for some investors in tax haven based
funds
• “Brand potential” of AIFMD funds similar to UCITS – discussion
that derivatives funds be restricted to AIFMD funds
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AIFMD Strategies
Wait and See
•
•
•
•
•
2015 decision on passport for non-EU AIFs and non-EU AIFMs
2015 decision also regarding private placement route post 2018
But will private placement rules survive until 2018?
Managed Accounts – not covered by AIFMD
Platform providers – each AIF must have a single AIFM which
can delegate - scope for delegation to US/other managers
• Non-EU funds post 2013 – implications for EU and Non-EU
Managers
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AIFMD Strategies
Mergers/Consolidation
• AIFMD likely to significantly increase cost of compliance for EU
Managers
• Depository likely to cost 100-150 basis points (AIMA)
• Establishment, reporting and approval obligations will add to
both launch and ongoing costs
• Start ups will be hit particularly hard – but existing small and mid
sized firms also
• Expect some teams/star traders to join existing firms or platform
providers instead of setting up solo to avoid/reduce costs
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AIFMD Strategies
Mergers/Consolidation
• Non-EU managers to buying into Europe
• Or set up own operations
• Ability to work through 3rd party marketers with
passport?
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Conclusion
 UCITS changing – investment range could be
narrowed
 EU domiciled funds becoming more popular
• Passporting of non-EU funds to become a possibility
from 2015
• Anticipated that private placement route will
disappear from 2018 – but subject to ESMA decision
in 2015
• Probability that private placement rules will be
narrowed significantly in some EU jurisdictions before
mid 2013
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AIFMD: From Our Side of the Pond
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AIFMD: From Our Side of the Pond
 Context: The US is Implementing its Own Regime Relating to
Funds that are Private Funds
 The Form PF Reporting Regime will have some similarities
to AIFMD Reporting
 Threat/Opportunity: AIFMD is both a threat and an opportunity for
US money managers.
 The Impact On US Money Managers Is Significant
 The Opportunity is the passport
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AIFMD Themes for US Money Managers
1.
Private Placements. Article 49 AIFMD offers the hope of continued
private placements with three new requirements (transparency, annual
report, regulator reporting).
 US Advisers will need this immediately
2.
Securitizations and UCITS. Article 63 rules on securitization
compliance will affect UCITS (and AIFMD)
 US Advisers will need this immediately
3.
US UCITS Managers. Impact on US based UCITS managers
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Senior Management Accountability
AIF Specific Business Plans
Remuneration
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AIFMD Themes for US Money Managers
4.
1940 Fund Managers. Impact on 1940 Act Fund managers
 The same as 3, plus
 Risk management
 Adaptation to an EU regulatory regime
5.
Hedge Fund Managers. Same as four, plus a wholesale shift to
“systemic regulation".
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6.
Duties arise to the "system" - previously unheard of for
hedge fund managers.
Cooperation Agreements with SEC.

Cooperation agreement between the SEC and ESMA is a
key dependency
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Question & Answer Session
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