AIFMD Countdown:
Breakfast Briefing No. 5
Level 2 - Le Nouveau Est Arrivé!
January 16, 2013
Doc No. 18948931
© 2012 Dechert LLP
Agenda Today
• Level 2 Context and AIFMD Timetable
• Transitionals
• Calculation of AUM, Regulatory Capital and PII Cover
• Operating Conditions: General Principles
• Operating and Organisational Conditions: Conflicts, Risk
and Liquidity Management, etc.
• Depositaries
• Transparency, Leverage and Delegation
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Today’s Panel Members
• Stuart Martin
• Abigail Bell
• Chris Gardner
• Richard Heffner
• Dick Frase
• Gus Black
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Level 2 Context and AIFMD
Timetable
Stuart Martin
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© 2012 Dechert LLP
Level 2 Context (1)
• AIFMD Level 1 (Directive):
– adopted July 2011
– Maximum Harmonising Directive
– Limited Scope for Member State discretion e.g. individual portfolio
management, capital aspects, annual report aspects, private equity
aspects, marketing to retail investors, depositary transitional
provisions
• AIFMD Level 2
– Regulation with “direct effect”
– Will apply in addition to FCA Rule Book
– Detailed “meat in the sandwich” provisions
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Level 2 Context (2)
• Regulatory Technical Standards. For example:– ESMA Consultation on types of AIF Managed by AIFM
• Level 3 Guidelines. For example:– ESMA Consultation and Guidelines on Remuneration Policies and
Practices
– ESMA Consultation and Guidelines on Key Concepts e.g. Definition
of AIF
•
Other ESMA Work Streams include:– Co-operation Agreements with Third Countries
– Relevant to Article 36/42 Marketing and Permitted Delegations
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Timetable
Note the date…
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AIFM Directive adopted
July 2011
Implementation on 22 July
2013
FSA Consultation (Part 1)
November 2012
Responses due by 1
February 2013
Level 2 Regulations published
December 2012
ESMA Consultations on RTS for
types of AIF and Guidelines on
meaning of AIF
December 2012
Responses due by 1
February 2013
HM Treasury Consultation and
draft Implementing Regulations
(Part 1)
January 2013
Responses due by 27
February 2013
FSA Consultation (Part 2)
Due February 2013
ESMA Guidelines on
Remuneration Policies
Due Q1 2013
FCA’s Policy Statement on
Implementation
June 2013
Transitionals
Richard Heffner
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© 2012 Dechert LLP
Transitionals
•
FSA Firm managing AIF “immediately before” 22 July 2013
– Transitional Relief available until 22 July 2014
– Must submit VoP before 22 July 2014
– Full compliance by earlier of grant of VoP or 22 July 2014
•
22 July 2013: New applicants/applicants with outstanding
applications/existing FSA Firms not eligible for Transitional Relief
– must obtain AIFMD permission prior to managing AIF
– Full compliance
•
Potential Issues:
– Access to EU Marketing Passport and National Private Placements
– Cross Border Management of EU AIF under Transitional Relief?
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Calculation of AUM, Regulatory
Capital and PII Cover
Richard Heffner
[Level 1: Article 3(2), Articles 9(7)/15]
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© 2012 Dechert LLP
AUM/Regulatory Capital/PII Cover
•
Calculation of total AUM for purposes of the small AIFM exemptions
–
Portfolios included / excluded
–
Temporary limit breaches
•
AIFM regulatory capital
–
•
Additional own funds
–
•
•
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Change from MiFID investment manager basis
Min 0.01% of AIF AUM
PI insurance Cover
–
Min each claim 0.7% of AIF AUM
–
Min all claims 0.9% of AIF AUM
Dual-authorised UCITS ManCo / AIFM
Operating Conditions: General
Principles
Abigail Bell
[Level 1: Article 12(1)]
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© 2012 Dechert LLP
General Principles (1)
• What are “operating conditions”?
• Derived from operating conditions for MiFID and
UCITS managers – so reflect compliance policies,
such as best execution and personal account dealing
• So similar to FSA COBS handbook
• Some obligations relate to the AIF itself, and not the
manager
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General Principles (2)
• Quality and commitment of governing body/personnel
• No “undue costs” charged to investors
• Fair treatment of investors
• Due diligence requirements
• Appointment of prime brokers and counterparties
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Operating and Organisational
Conditions: Conflicts, Risk and
Liquidity Management, etc.
Chris Gardner
[Level 1: Articles 12,14,15,16,18 and 19]
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© 2012 Dechert LLP
Conflicts of Interest
• AIFM/MiFID investment managers/UCITS
management companies convergence – business as
usual?
• Key features of conflicts policy
• Disclosure and internal reporting
• Impact on personnel structures
• AIF voting rights
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Risk Management
• Tracks equivalent requirements for MiFID investment
managers and UCITS management companies
• What does “functional and hierarchical separation”
mean?
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Liquidity Management
• A new requirement under AIFMD
• Match portfolio liquidity to redemption profile and counterparty
commitments
• Guidance on liquidity measurement arrangements, liquidity limits
and use of redemption gates and other liquidity management
tools
• Guidance for funds of funds
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Internal Procedures and Valuation
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•
Internal Business Arrangements
•
Data Processing
•
Accounting Procedures
•
Permanent Compliance/Internal Audit Functions
•
Personal Transactions
•
Record Keeping
•
Policies and Procedures for Valuation/Calculation of NAV
•
Use of Models/Frequency of Valuation/Professional Guarantees for
External Valuers
Depositaries
Dick Frase
[Level 1: Article 21]
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© 2012 Dechert LLP
Depositaries
• Emphasis on safekeeping and oversight function
• Prescribed contents of AIFM/AIF/depositary custody
agreement
• Ongoing information to be provided between the
parties (including prime broker reporting)
• Depositary to monitor cash accounts, cash flows,
subscriptions and redemptions, monitor AIFM’s
procedures, check book-keeping and reconciliations,
appropriate valuation procedures, investment
restrictions, leverage, transaction settlement, income
distribution
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Depositary/Prime Broker Structures
Onshore AIF, onshore AIFM
Offshore AIF, onshore
AIFM (EU marketing)
Offshore AIF, onshore AIFM
(no EU marketing)
EU depositary
Out of depositary scope
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Prime broker as sub-custodian
“Depositary light” - prime
broker (custodian) and
administrator/depositary
Prime broker’s sub-custody
network
Prime broker’s subcustody network
Offshore AIFM (EU
marketing)
Out of depositary scope?
Transparency, Leverage and
Delegation
Gus Black
[Level 1: Articles 22 to 25, Article 20]
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© 2012 Dechert LLP
Transparency and Leverage
• Regulations contain more detail on reporting and disclosure
• Leverage calculation methodologies and “substantial leverage”
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–
Gross Method
–
Commitment Method
–
Comparison vs. UCITS
Delegation (1)
Fund
Primary
Manager
?
or
AIFM
?
Submanager
Delegation (2)
Article 82(1)(d):
•
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“The AIFM delegates the performance of investment management
functions to an extent that exceeds by a substantial margin the
investment management functions performed by the AIFM itself…”
Other Provisions
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•
Annual Reporting
•
Material Changes
•
Remuneration Disclosure
•
Periodic Disclosure
•
Reporting to Competent Authorities
•
Restriction of Leverage
•
Arrangements with Third Countries/Co-operation Agreements/Exchange
of Information
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