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September/October 2012


Alfi Global Distribution Conference in Association with NICSA & HKIFA

Š 2012 EYGM Limited. All Rights Reserved.

AIFM: are you ready to navigate the strategic opportunities and challenges?

The AIFM Directive goes well beyond compliance – it will lead to restructuring in the alternatives sector. The Directive will impact EU and non-EU alternative investment funds, their managers, service providers and investors. Find out more at Financial Services | Alternative Investment Funds Michael Ferguson Hedge and UCITS Funds Ernst & Young, Luxembourg

Michael Hornsby Real Estate Funds Ernst & Young, Luxembourg

Alain Kinsch Private Equity Funds Ernst & Young, Luxembourg

Kai Braun Alternatives Advisory Ernst & Young, Luxembourg

Special alfi global distribution conference in association with nicsa & hkifa

or e di t

ial Luc Frieden

Minister of Finance, Grand Duchy of Luxembourg

The next 20 years

Unique opportunities Luxembourg’s Minister of Finance aims to make the Grand Duchy the jurisdiction of choice for alternative investment funds. Text Luc Frieden Illustration Vanda Romão


his year’s ALFI Global Distribution Conference, in association with NICSA & HKIFA, takes place at highly interesting juncture: in an environment marked by volatile market conditions and uncertain economic developments, the fund industry has proven its unparalleled resilience. Yet, it is also facing tremendous challenges in the months ahead and they may well represent a recurring theme in many of your discussions, presentations and debates throughout the 21st edition of this key event for the Luxembourg fund industry. Among these numerous challenges, however, lie unique opportunities. With the imminent publication of the draft legislation transposing the Alternative Investment Fund Managers Directive, the alternative investment industry is set for a major overhaul of the regulatory landscape. The draft bill will not only foresee a coherent transposition of the directive’s much discussed provisions into national law, but will crucially include a complementary legal package

specifically designed to accompany and facilitate the expansion of the alternative investment industry in Luxembourg. This package will cater for the specific needs of the industry and foresees inter alia the creation of a new legal structure – the société en commandite spéciale, or “special limited partnership” – and includes certain tax provisions, for instance in relation to “carried interest”. The aim is therefore to unleash the full potential of the directive for managers of hedge funds, private equity funds and real estate funds by further completing the legal, fiscal and regulatory offering and thereby establishing Luxembourg as the single jurisdiction of choice for all types of funds. My personal ambition is to see this raft of measures in relation to AIFMD to be adopted and implemented by the end of this year such that all the players in the industry can swiftly start the necessary preparations and reap the benefits of this unique opportunity. In this context, the timing of this year’s ALFI Global Distribution

Conference is such that it will provide the ideal forum for key stakeholders from around the world to gather in Luxembourg, build the necessary relationships and discuss the business opportunities that lie ahead. Based on our long-standing, global success story with the Luxembourg UCITS brand, I am highly confident that the Luxembourg fund industry – in conjunction with regulators and relevant government authorities – will indeed be able to leverage on its vast experience and knowhow that it has accumulated over the past 20 years in building a AAA brand for investment funds recognized throughout the world. I can also assure you that I will continue to lead the efforts for a growth strategy in the coming months to further develop and grow the Luxembourg jurisdiction as a centre of excellence and prime location for the European and international fund industry and I very much look forward to the valuable conclusions arising out this year’s ALFI Global Distribution Conference. September - October 2012 —  



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Special alfi global distribution conference in association with nicsa & hkifa

or e di t

ial Fernand Grulms

CEO, Luxembourg for Finance

Mutual interest

Wake-up call The head of Luxembourg’s finance promotion agency calls for asset managers to take on a new advocacy role. Text Fernand Grulms Illustration Vanda Romão


he outlook for the global economy is still uncertain. This is also true for the financial sector in many parts of the world. Governments worldwide have introduced and are still introducing legislation to better regulate the financial industry. One purpose of the new rules is to improve transparency. It should also help regain customer confidence. But it appears that not all of the necessary lessons have been learned yet. When I look back at recent events, I see for example a Facebook IPO, largely overpriced, where financial intermediaries were sitting on comfortable long positions pushing up the issue price to fill their own pockets with complete disregard for the final investors’ interests. The asset management industry has a key role to play: it sits in the middle, acting as an intermediary between the financial markets and the final investor. As Gian Luigi Costanzo notes in the OECD Journal, asset managers fulfil three essential functions: channelling capital from creditors to debtors, providing liquidity to ensure the func-

tioning of capital markets and giving clients access to a broad range of asset classes to diversify their portfolio. But I see an important fourth role for the asset management industry: that of protecting the interests of the investor. Asset managers should act as stewards of their clients’ interests. They have a duty to act responsibly and sustainably. They have to point out malfunctioning of the markets and they have to voice their opinions to help raise the governance principles and ethical standards. To this extent, asset managers have an important role to play in shaping the capital markets of tomorrow. The asset management industry will be facing hard times. Households are deleveraging and unemployment is increasing all over Europe. This means that growth in retail asset management is especially inhibited. Increasing public debt and fiscal consolidation plans will slow down growth prospects in the developed world. The growth robustness in emerging markets

could be jeopardised as these countries are heavily dependent on the developed world for their exports. All this is not good news for the asset management industry. Especially in Europe, there is sufficient room for rationalisation. Asset managers need to increase the size of their funds and expand the geographic focus to monitor costs. Mergers and acquisitions remain a main avenue for growth of asset management firms. Outsourcing and the mutualisation of activities can also help to better monitor costs. Apart from administration, mutualisation could be realised in product development or in research. The asset management and fund industries are still doing well. But challenges lie ahead and the industry needs to take them seriously. The annual ALFI-NICSA-HKIFA autumn conference is a perfect setting to discuss all these issues and many more to pave the way for a successful future, in the interest of the investor and of the asset management companies. September - October 2012 —  


Getting the right structure calls for expert analysis Deloitte Luxembourg’s app is

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Special alfi global distribution conference in association with nicsa & hkifa

Contents ALFI Global Distribution Conference 2012

Editorials 3

Conference agenda

Luc Frieden

Unique opportunities Luxembourg’s Minister of Finance aims to make the Grand Duchy the jurisdiction of choice for alternative investment funds.

5 Fernand Grulms

Wake-up call The head of Luxembourg’s finance promotion agency calls for asset managers to take on a new advocacy role.

20 The whole programme at a glance.

36 Distribution

UCITS IV: the overlooked efficiency package? By Lou Kiesch


Speakers 26

New research

East moving west: the Chinese dimension By Michael Ferguson

View from Washington

What’s ahead for the US fund industry By Theresa Hamacher

40 Depositaries

UCITS V on its way By Freddy Brausch


Interview 8 Marc Saluzzi

Hong Kong perspective

Positive cooperation By Sally Wong


“I see a kind of regulation fatigue settling in”

Challenges to collective investment

The president of the Association of the Luxembourg Fund Industry (ALFI) doesn’t argue against the principle of strict regulations in the financial sphere. However, he fears that their chaotic accumulation may generate counter-productive effects on the entire funds industry.

Investor protection

42 Alternatives

AIFMD: opportunities for Luxembourg By Claude Niedner


By Eddy Wymeersch


Beyond systematic risk By Jean-Baptiste De Franssu

44 Tax debate

Forced to think differently By Georges Bock

46 Communications

Business critical? By Tony Langham

Exhibition plan 18 Who? Where? Here’s a practical guide.

34 Looking east

The survival guide to the Asian fund industry By Justin Ong

Picture report 48 2011

Flashback The previous Global Distribution Conference took place on 27 and 28 September 2011 in the Centre de Conférences in Luxembourg-Kirchberg.

September - October 2012 —  



Special alfi global distribution conference in association with nicsa & hkifa

 — September - October 2012

Special alfi global distribution conference in association with nicsa & hkifa

Marc Saluzzi

“I see a kind of regulation fatigue settling in” The president of the Association of the Luxembourg Fund Industry (ALFI) doesn’t argue against the principle of strict regulations in the financial sphere. However, he fears that their chaotic accumulation may generate counter-productive effects on the entire funds industry. Text Marc Saluzzi Illustration Vanda Romão


r. Saluzzi, macroeconomic publications, be they Luxembourgish or international, are pessimistic to say the least. What impact should one expect this to have on Luxembourg’s investment funds sector? “The current economic situation is not very upbeat. Even countries that are reputed as sound economically, such as China and Germany, are beginning to experience problems with slowing growth rates. There is no positive news to be expected over the coming months and quarters. As far as the financial markets are concerned, there is a different trend, which is more based on anticipation. And quite surprisingly, these markets have been rising at a time when the raw economic data is not very optimistic. This impact directly benefits the funds management sector, mechanically increases the value of the assets and restores a certain profitability to the business, at least in the short term. As for Luxembourg’s asset management sector, it has maintained its market share, even though there have not been a notable rebound worldwide over the past few years. Thus, with regard to assets under management, we managed to recover after the crisis and returned to the record levels of 2008. In 2011, net subscriptions amounted to five billion euros, but in the first half of 2012, the figure had risen to 43 billion euros, with a positive market effect that is due to improve further in July and in August. If you combine all this together, the conclusion one reaches is that ‘so far, so good!’, but not much

more than that. It is all still very delicate and it is very difficult to know where we are heading. We can see that we are able to take and absorb a certain number of hits, thanks to our cross-border model. But the question is to know up to what point and until when we can hold out against a slew of bad news. For the time being, we are holding out rather well. That is rather encouraging in the world in which we live. A new record amount of assets under management in Luxembourg (2,225.6 billion euros) was reached in April. Does this mean that investment funds constitute a kind of safe haven for investors? “You cannot think of it as such. If you look at what is happening in a number of developed or emerging countries, such as France, China and India, you see a rationalisation, not to mention a reduction in the assets under management and a reduction in the number of funds overall. In Luxembourg, it is above all our cross-border model and our diversification in terms of classes of assets and geographical areas of investment which increase our resistance to the crisis. Thus, over a period of 10 years, the combined market share of Luxembourg and Dublin, the leading operators in the market for cross-border distribution of asset management services in Europe, rose from 20 to 40%. In general, the concept of regulated investment funds is showing strong resilience, and in spite of a lack of growth over the past few years, retains rather

remarkable levels of assets under management. But that’s not to say that this is the sole savings or investment tool ‘of choice’ of the entire planet. Has the current sovereign debt crisis had a direct impact on the funds sector? “There are of course very significant effects, as shown by a very recent study published by Lipper detailing the impacts of the crisis on each class of assets. If you want a very concrete and particularly striking example, the European Central Bank decided to cut its key rate by a quarter point to 0.75% [ed.: which constitutes its lowest historical level] in early July. As a result, a whole number of money market funds and cash funds found themselves in trouble, unable to pay out a positive yield to their shareholders. What can be done to face off such a danger? “Unfortunately not much. Asset managers have but little influence on the rates set by the various central banks or on valuation of the financial markets! Apart from extreme caution in terms of investment and drastic cost-cutting, they have very little ability to influence the rate of return of their products in such a fluctuating economic and financial environment. You launched five projects at the start of your presidency, one year ago. Now, just over one year down the line, where do we stand now in relation to your roadmap? “I should point out briefly that the idea was to protect the concept of September - October 2012 —  



Special alfi global distribution conFerence in association with nicsa & hkifa

“We managed to recover after the crisis and returned to the record levels of 2008” Marc Saluzzi


regulated products against the current regulatory onslaught; to consolidate, with the AIFM directive, the positioning of Luxembourg as an alternative management centre in Europe and beyond; to develop innovation with a focus on ‘responsible investing’; to facilitate cross-border distribution, and finally, to position ourselves as the key partner for all of the players in this sector worldwide. Overall, we have made a lot of progress in these various endeavours. After the first year of our five year plan, we are highly confident of being able to achieve our aims. Concerning the first point, for instance, we have engaged in extensive lobbying and have responded to countless consultations. This regulatory agenda, mainly in Europe but also in America, is, despite all our efforts, very difficult to manage and right now no one is really able to know where it is going to take us. On the one hand, there is already talk of Ucits V and Ucits VI whereas we have only just come to grips with Ucits IV. On the other hand, we are still waiting to know what will be the level 2 measures of the AIFM directive, which were due out at the start of the summer and are now expected in September. There has also been talk about the proposed tax on financial transactions, FATCA, Volker Rules, not to mention many others. In the final analysis, we have mixed feelings about all this. We are battling for every inch while remain – September - October 2012


Three partners The Association of the Luxembourg Fund Industry (ALFI) is the official representative body for the Luxembourg investment fund industry and was set up in November 1988 to promote its development. NISCA (National Investment Company Service Association) is the leading provider of independent education and networking forums to professionals in the global investment management community. It was founded in 1962 in the US and has a network of nearly 10,000 business professionals from within that community. The Hong Kong Investment Funds Association (HKIFA) was established in 1986, as a non-profit-making industry organisation that represents the fund management industry of Hong Kong. Its goals are to foster the development of the fund management industry in Hong Kong, to enhance the professional standards of the industry to ensure that they are in line with international best practices and to maintain Hong Kong’s competitiveness as the major fund management center in Asia.

ing proactive, but with results that are not always in keeping with our expectations. Under these circumstances, our workgroups are being pressed into action to analyse these new statutes and regulations in order to make them easier to understand for all of our members. For example, a series of one-day sessions on the impact of AIFMD on the three classes of alternative assets of private equity, real estate and hedge funds, drew nearly 600 people over the past three months. As far as the AIFM directive is concerned, however, things appear to be going rather well in Luxembourg, since the bill of law transposing the directive is about to be presented to parliament [ed.: the bill was presented following paperJam's interview with Saluzzi, on 30 August].“Indeed, the text is ready. It is about to be put before parliament. Apart from the transposition of the directive per se, there is also a second part of the text, an ‘alternative pack’, which goes beyond the transposition and which will lay the ground for more effective investment structures, including a limited partnership scheme as well as a new taxation regime for ‘carried interest’. We plan to communicate proactively about this text as part of a series of road shows which will be held until early 2013, with the aim of consolidating Luxembourg’s leadership in the field of alternative management, and attracting investors.

Special alfi global distribution conFerence in association with nicsa & hkifa

Fund statistics

Number of Luxembourg funds Net Luxembourg assets (in € billion)

Net assets (€ billion)

Number of investment funds 3,900


3,800 3,700 3,600


3,500 3,400 3,300

Many professionals in the sector believe that the extensive experience of Luxembourg with Ucits can help it to develop the field of hedge funds under the AIFM directive. Is it that simple?“There is a major difference between the starting points of these two businesses. People tend to overlook this. When Ucits was created, the market for collective management aimed at a retail client base was mainly local and each country had its own sector. Luxembourg was one of the first to develop this sector on a cross-border basis. And our country benefited extensively from being the first to do so. In the case of alternative management or hedge funds, the activity is already globalised. With the introduction of AIFMD, a part of the world is being saddled with a set of rather strict regulations in return for a passport. From that point of view, the way in which this directive will influence the sector is less clear. The issue is to know how the players on the market will incorporate these new regulatory requirements into a business model which already exists. It will also be very important to look at how the regulation of this sector will develop outside Europe. The United States have introduced new rules as part of the Dodd Frank act, but Asia has not yet really reacted. The notion of ‘first mover advantage’ is therefore not as critical, even if our aim is to be among the first to deploy this directive. Nevertheless AIFMD is going to significantly alter the alternative management model in Europe by regulating it in a relatively similar way to what we have experienced in our Ucits business. Our expertise and experience in the field of  – September - October 2012

“In general, the concept of regulated investment funds is showing strong resilience” Marc Saluzzi


Jul 12

Apr 12

Jan 12

Oct 11

Jul 11

Apr 11

Jan 11

Oct 10

Jul 10

Apr 10

1,700 Jan 10


Source: CSSF


regulated funds as well as the lever formed by our global distribution platform should enable us to replicate in alternatives our success on the market for Ucits funds. Last year you said that you regretted the slowdown in innovation in the funds sector in Luxembourg. Do you think that things have improved over the past fifteen months? “Yes. In order to achieve concrete targets in this area, we began by choosing a theme on which we then focused specifically: ‘responsible investing’. In this specific field, we remodelled our workgroups and technical commissions, placing them under the responsibility of Tom Seale [ed.: ALFI board of directors member and chairman of the association between 2003 and 2007] This led first and foremost to the organisation of a major international event, which was backed and attended by members of the Grand-Ducal family, Finance Minister Luc Frieden and the European Commission. We managed to draw to Luxembourg the big players in ‘responsible investing’. This conference was also an opportunity to share the results of a survey commissioned by ALFI into funds that are active in this field in Europe. The next step will be to push even further those funds that have social-related goals and to build around them a set of structures that will enable this business to develop itself even more actively, such as the notion of ‘Société d’Impact’.. We are aware that this is a long-term process, since our ambition is to basically design the 3rd pillar of our fund centre, together with Ucits funds and hedge funds. We are only at the start of this particular venture, but we are already quite

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Special alfi global distribution conFerence in association with nicsa & hkifa

“AIFMD is going to significantly alter the alternative management model in Europe” Marc Saluzzi


advanced, with certain significant market shares such as in carbon funds and microfinance funds. What about the aspects linked to the development of cross-border distribution? “There too, we have been doing our job. I don’t have the detailed figures for this year, but in 2011, we visited 22 countries, 25 cities and made presentations to more than 4,500 professionals in the collective management sector. We have also adapted our events to our audiences, with massive shows before audiences of up to 750 people, as we recently did in London, but also tailor made presentations to more carefully targeted professionals. The intensity is therefore there and the sophistication is increasing. We are acknowledged as being the most active association in our field. We continue more than ever before to promote the strengths of the Ucits product in general and to reassure investors about its soundness. These efforts are still ongoing this year, with a greater focus on AIFMD. As for the last aspect, that of being the key partner for the sector as a whole, we are continuing to do what we have always done, i.e., trying to convince asset managers to create operations or to structure products in Luxembourg. But we have  – September - October 2012


Marc Saluzzi Marc Saluzzi, age 49, is chairman of the ALFI’s board of directors, and has more than 25 years of experience in the asset management industry in Luxembourg and in the US. He graduated from the Institut Supérieur de Gestion, or ISG business school, in Paris, and today is partner at the consulting firm PwC in Luxembourg, as well as a réviseur d’entreprises agréé, or an accredited auditor. The French national joined the firm in 1986, worked at PwC in Boston from 1990 to 1992, and became a partner in the Grand Duchy in 1996. Between 2006 and 2010, Saluzzi led the PwC Global Asset Management practice. He currently is a member of the CSSF-OPC Committee, advising Luxembourg’s financial regulator on laws and regulations impacting the fund industry in Luxembourg. Saluzzi was elected chairman of ALFI in June 2011.

added a new dimension to our approach, namely to demonstrate that we can also provide solutions to fund managers or products that are not domiciled in Luxembourg. We have gained such an expertise in so many fields that we can clearly put this expertise at the service of everyone. We are having some success with this approach. We are, internally, in the process of assessing what we are really able to do and to what extent this is a strong trend. Once we have a clearer picture, we will be better placed to communicate on this aspect of things. Is this an innovative approach? “It is an innovative approach, though the content is still the same. We aim to send out a more subtle and inclusive message, rather than just saying ‘Come and get it here!’ You have regularly denounced the excessive amount of regulations which has been burdening the sector in recent times. Are you able to sound the alarm in Brussels, or even Washington? “We are issuing such warning messages all the time! It is not the increase in regulations per se that we are complaining about. But the fundamental message that we are trying to put

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Special alfi global distribution conference in association with nicsa & hkifa

Country of origin for funds domiciliated in Luxembourg (June 2012) OTHERS: 5.7% SWEDEN: 1.7% LUXEMBOURG: 2% NETHERLANDS: 2% Belgium: 5.2%

“Funds sector must be dealt with separately”

US 23.8%


ITALY 7.8%

Marc Saluzzi


UK 13.3%



Source: CSSF

across, is to urge lawmakers to make the effort to understand what are the real problems affecting the sector and to attempt to deal with these problems only, as opposed to spewing out an uncoordinated and chaotic morass of regulations, without considering what its impact will be on the financial sector and beyond that, on its users. At our level, we also point out that the funds sector was not the cause of the crisis nor did it exacerbate the crisis, and it must therefore be dealt with separately. Due to the current fad for applying transversal regulations to the entire financial sector, the funds sector is becoming over-regulated, whereas it was already very tightly regulated to begin with, at the risk of causing it to lose its competitive advantage. The returns are already very low. If, on top of this, the costs of compliance increase disproportionately, the net outcome for the investor will of course be a ‘risk free’ product, but also a product with zero yield, as is already the case with some money market funds. Do you reckon you are managing to make yourselves heard? “I am not convinced that we are being heard enough. I see a kind of regulation fatigue settling in, including at the level of the supervisory authorities themselves, who are also subject to tremendous challenges in respect of the sheer volume of rules that they have to implement. It is about time that the politicians realised that this regulatory agenda, in order to be effective, must be structured, reasonable and orderly, and  — September - October 2012

The 2012 conference

Continuity Like last year, the Global Distribution Conference, which is being held on 18 and 19 September in Luxembourg, is being organised by ALFI, in association with its traditional US partner NISCA, but also with its Hong Kong counterpart HKIFA. “This partnership has been renewed to demonstrate our intention to form closer links with Asia”, says Marc Saluzzi. “What was a new dimension in 2011 will now be confirmed this year.” The conference will focus particularly on this part of the world, through themes relating to global distribution, all aspects of which will be dealt with, be they technical or regulatory. “The world is suffering economically and financially, which is tempting many players to adopt a somewhat more protectionist approach towards their local investor populations” says Saluzzi. “Through our conferences, but also our road shows, we must once again go out and meet our business partners, in order to identify all the potential sources of blockage or lack of understanding and clarify the situation so as to reassure the international community about the benefits that Ucits or AIFMD can contribute.” The conference will also dedicate part of its agenda to alternative funds, with professionals of the funds sector looking at the ways in which the alternative management sector can leverage the passport principle introduced by the directive.

not merely a profusion of regulations pulling in all directions and threatening the viability of a sector, asset management, which operated smoothly before and during the crisis. We must truly insist on this message. Do you trust that things will improve nevertheless? “I am optimistic for Luxembourg, bearing in mind that the thing which we must at all cost pay attention to, is the future of regulated funds. We have shown that we had, with Ucits, a product that could meet the expectations of a broad spectrum of investors. We want to apply the same principles to alternative funds, while ensuring that these regulated funds are not regulated out of the market in favour of investment vehicles that do not offer the same guaranties in terms of investor protection. This is a particularly difficult balance to achieve, but this regulatory ‘level playing field’ is an absolute priority for our industry. We also note that a number of sectors in the financial industry are veering away from the real economy. Yet, funds can be used to fuel the real economy, be it by way of traditional or alternative funds – such as private equity – or through funds invested in keeping with the principles of ‘responsible investing’, such as the new EuSEF. From that point of view, since funds, as a product, form part of the solution, let’s ensure that this part of the solution is protected and nurtured so as to contribute ever more to the economy. We will then achieve a win-win situation for all of the economic players.

20 12

More information on our locations on


Special alfi global distribution conference in association with nicsa & hkifa

floor plan

Exhibitors plan Here is a quick overview of the expositions at the New Conference Centre Kirchberg. P

New Entrance Exit

1st Floor: Sponsors Lunch


Bag Booth

Coffee & 11 10 Drinks Bar

Lunch Hot Buffet

Press Lounge




14 1 5


Lunch Hot Buffet




1 ALFI Info Desk Publication Desk 4 3

Tea Bar


Meeting Point & Lounge

21 21a

Massage Zone


Lunch Cold Buffet & Breaks Buffet


Registration Desk

45 44 43 42 41

Lunch Cold Buffet



1st Floor: Speakers Lounge


Internet Corner





Permanent Bar




Lunch Cold Buffet Breaks Buffet








28 27

Coffee & Drinks Bar

Lunch Hot Buffet

exhibitors booth n°


booth n°


booth n°



arendt & medernach


IDS Gmbh-analysis and Reporting Services


northern trust


bnp paribas Securities Services


Institut IFbL


portfolio institutional


J.p. moRGan


profidata Services aG




Rbc Investor Services


RR Donnelley


Six Financial Information


Société Générale Securities Services

How to find us? 39 bonn & Schmitt avocats 7 17 28 30 41

By bus: brown brothers harriman 8 KnEIp With most bus lines to Kirchberg – stop at “Philharmonie/Mudam” – transit via Centre Aldringen, central cacEIStrain station and boulevard Royal. 11 KoGER Inc. Further information can be obtained from the “Mobilitéitszentral” hotline (+352) 24 65 24 65 cerulli associates 18 KpmG or By car: confluence 43car park; Loyens & Loeff Direct and covered access from the “place de l’Europe” entry on avenue John F. Kennedy. From the “Trois Glands” car park; via avenue John F. Kennedy and the place de l’Europe tunnel; Deloitte 22 mDo Services S.a. or via rue du Fort Thüngen.






State Street


Ernst & young


milestone Group


Swiss & Global


Eurizon capital


money media (Ignites)




Finesti S.a.






Funds Europe


much-net financial software & services S.à r. l.




hSbc Securities Services



 —  September - October 2012

Special alfi global distribution conference in association with nicsa & hkifa

Company Arendt & Medernach

Booth number 1

BNP Paribas Securities Services


Bonn & Schmitt Avocats


Brown Brothers Harriman




Cerulli Associates









Booth number

IDS GmbH-Analysis and Reporting Services


Institut IFBL

10 29a



Booth number

Northern Trust


Portfolio institutional




RBC Dexia








Loyens & Loeff


MDO Services


Société Générale Securities Services



State Street


Milestone Group


Swiss & Global



RBC Investor Services RR Donnelley


Six Financial Information

15 21a

Ernst & Young


Eurizon Capital


Money Media (Ignites)










much-net financial software & services



Funds Europe HSBC Securities Services



37 Multifonds


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 September - October 2012 —  



Special alfi global distribution conference in association with nicsa & hkifa

Agenda Programme day 1 – Tuesday 18th September 2012 Day 1 Registration & breakfast

Chairperson’s wrap up

 08.00 – 09.00

 12.20 – 12.30

Refreshment break and visit of the exhibition area  16.15 – 16.45

Welcome & introduction  09.00 – 09.20

Theresa Hamacher, CFA, President, NICSA, Boston Sally Wong, Chief Executive Officer, Hong Kong Investment Funds Association, Hong Kong Marc Saluzzi, Chairman, ALFI, Luxembourg

Chairperson’s introduction  09.20 – 09.25

Thomas Seale, Chief Executive Officer, European Fund Administration, Luxembourg

Opening speeches  09.25 – 09.45

H.E. Luc Frieden, Minister of Finance, Luxembourg Government

It’s not about the money...  09.45 – 10.15

David Schrieberg, Chief Executive Officer and Co-Founder, VitalBriefing, Luxembourg

Letter from America  10.15 – 10.45

William Lee, Managing Director, Office of the Global Chief Economist, Citi, New York

Refreshment break and visit of the exhibition area  10.45 – 11.15

The fund industry confronted with the regulatory challenge  11.15 – 11.45

Eddy Wymeersch, Professor, University of Gent, Belgium and former CESR Chairman

A new dawn for distribution – the impact of regulation on distributor remuneration and business models  11.45 – 12.20

Diana MacKay, Chief Executive Officer, MacKay Williams, London

 — Septembre - Octobre 2012

Lunch hosted by  12.30 – 14.30

Ernst & Young State Street Bank Luxembourg

Chairperson’s introduction  14.30 – 14.35

Bob Kneip, Chief Executive Officer, Kneip, Luxembourg

Upcoming opportunities in the African capital market  14.35 – 15.15

Moderator: Fernand Grulms, CEO, Luxembourg for Finance Panelists: Said Ibrahimi, CEO, Moroccan Financial Board, Casablanca Reda El Alj, Managing Director, RMA Capital, Casablanca

East moving West – the Chinese dimension  16.45 – 17.45

Moderator: Michael Ferguson, Partner, Asset Management Leader, Ernst & Young, Luxembourg Panelists: Dr Qi Chen, CEFA, Head of Fund and Risk Controlling, Commerz Funds Solutions,Luxembourg Jin Wang, Managing Director, CSOP Asset Management, Hong Kong Michael Wong, Senior Associate, Allen & Overy, Hong Kong

Skype: a recipe for success in a fast paced and constantly evolving industry  17.45 – 18.25

Neil Ward, Vice President and General Manager, Business Operations, Skype Communications, Luxembourg

The Asian opportunity – where do we stand and what can we expect?

Chairperson’s wrap up

 15.15 – 16.15

 18.25 – 18.30

Moderator: Justin Ong, Partner, PwC, Luxembourg Panelists: Angelyn Lim, Partner, Dechert, Hong Kong Sally Wong, Chief Executive Officer, Hong Kong Investment Funds Association, Hong Kong Neil Longmuir, Global Head of Product, Investment Fund Services, Standard Chartered Bank, Singapore Colin Lunn, Head of Fund Services Asia-Pacific, UBS Global Asset Management, Hong Kong Mostapha Tahiri, Head of Asset and Fund Services Asia, BNP Paribas Securities Services, Singapore

Cocktail reception at the Hotel Melia sponsored by  18.30 – 19.30

PwC Luxembourg


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Agenda Programme day 2 – Wednesday 19th September 2012

Day 2 Registration & breakfast

Refreshment break and visit of the exhibition area

 08.00 – 08.45

 10.20 – 10.50

Chairperson’s introduction Governance trends in the European financial services sector and implications for the asset management industry

 08.45 – 08.50

Julien Zimmer, General Manager Investment Funds, DZ Privatbank, Luxembourg

 10.50 – 11.00

Professor Dr. J.W. Winter, De Brauw Blackstone Westbroek, Amsterdam

Addressing investor protection  08.50 – 09.20

Jean-Baptiste de Franssu, Chairman, INCIPIT, Brussels

Interview: Governance imperatives for funds and asset managers – where are we and where should we be going?

Commission’s proposal on cross-cutting product disclosures

 11.00– 11.40

Interviewees: Jean Guill, Director General, Commission de Surveillance du Secteur Financier, Luxembourg

 09.20 – 09.30

Tilman Lueder, Head of Unit, Asset Management, European Commission, Brussels

Deep dive into distribution – the follow-up  09.30 – 10.20

Moderator: Lou Kiesch, Partner Regulatory Consulting, Deloitte Tax & Consulting, Luxembourg Panelists: Sheenagh Gordon-Hart, Client and Industry Research Executive, J.P. Morgan Worldwide, London

Professor Dr. J.W. Winter, De Brauw Blackstone Westbroek, Amsterdam Interviewer: Rafik Fischer, General Manager, Head of Global Investor Services, KBL European Private Bankers, Luxembourg

AIFM Directive – is all of this reasonable?  11.40 – 12.10

Noel Fessey, Global Head of Fund Services, Schroder Investment Management, Luxembourg Rob Lay, Managing Director, Head of Distribution Partners Europe and Middle East, UBS Global Asset Management, London Tilman Lueder, Head of Unit, Asset Management, European Commission, Brussels

Jacques Elvinger, Partner, Elvinger Hoss & Prussen, Luxembourg

Chairperson’s wrap up  12.10 – 12.15

Lunch hosted by  12.30 – 14.15

BNP Paribas Deloitte

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 — Septembre - Octobre 2012

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Agenda Programme day 2 – Wednesday 19th September 2012

Day 2 Chairperson’s introduction  14.15 – 14.20

Serge Krancenblum, Chief Executive Officer, SGG, Luxembourg

New Media in Financial Services  14.20 – 14.50

Tony Langham, Chief Executive, Lansons Communications, London

Trends in Global Distribution  14.50 – 15.20

Nils Johnson, Director, Spence Johnson, London

Refreshment break and visit of the exhibition area  15.20 – 15.50

Investment funds in the tax debate: active participants or passive ones?  15.50 – 16.30

Keith O’Donnell, Partner, Atoz, Luxembourg Gérard Laures, Partner, Tax, Financial Services, KPMG, Luxembourg

UCITS V, only a concern for the depositories?  16.30 – 16.55

Freddy Bausch, Partner, Linklaters LLP, Luxembourg

 — Septembre - Octobre 2012

AIFM Directive – passport or private placement: what is the best option?  16.55– 17.35

Moderator: Claude Niedner, Partner, Arendt & Medernach, Luxembourg Panelists: Natasha Cazenave, Deputy Head of the Asset Management Regulation Policy Division, Autorité des Marchés Financiers, Paris Joanna Cound, Managing Director, Government Affairs & Public Policy, BlackRock, London Stefan Gavell, Head of Regulatory, Industry and Government Affairs, State Street Bank, Luxembourg Felix Haldner, Partner, Member of the Executive Board, Head Investment Structures, Partners Group, Baar-Zug

Chairperson’s closing remarks  17.35 – 17.40


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“That simple world is gone now” Theresa Hamacher

President, NICSA

View from Washington

What’s ahead for the US fund industry The American market is seeing greater convergence between retail and institutional funds, and an increasing regulatory focus on investor advice. Text Theresa Hamacher Illustration Vanda Romão


he environment facing the US fund indus­ try over the past year has been tumultuous. With a stuttering economic recovery, nearzero interest rates, instability in the Eurozone and heightened regulatory scrutiny, US fund managers have been forced to adapt and innovate. The pace of change shows no sign of slacken­ ing. Here are a few things to watch closely over the next 12 months:

The battle over money market funds The Federal Reserve argues that money market funds pose a systemic risk, while the Securities and Exchange Commission claims that they’re inher­ ently unfair because they favour sophisticated in­ves­­ tors. Both argue that even more regulation is needed. The fund industry counters that money market funds are nowhere near as risky as the regulators claim, especially after additional investment restric­ tions were imposed shortly after the credit crisis. Fund managers also contend that more regulation would make money funds unviable, effectively wip­ ing out an important alternative to bank deposits. As of mid-July, the SEC seems on the brink of pro­  — September - October 2012

posing a combination of restrictions on money fund redemptions with a capital “buffer”, effectively a reserve requirement. Proponents appear to want to drive the reform package through before the presidential election in November, but whether they have enough support to do so remains to be seen.

The great convergence It used to be simple. Mutual funds were highly regulated, could be sold to the general public, and used traditional, conservative approaches when investing. Hedge funds were unregulated, were sold privately, and took a lot of risk while using innovative investment approaches. That simple world is gone now–a casualty of the low interest rate environment and of recent legislation. Mutual funds are looking more and more like hedge funds. They’re responding to consumer demand for higher-return vehicles, by adopting alternative investment approaches. The shift has been popular – alternative mutual funds have been dominating fund sales recently. At the same time, hedge funds are starting to look more like

mutual funds. Hedge fund managers are now reg­ ulated as investment advisers, thanks to the Dodd-Frank Act, and they’ll soon be able to advertise publicly for new investors–as an unin­ tended consequence of the JOBS Act, passed in January. The gap between the types of fund managers is likely to continue to steadily close. The convergence is creating challenges for reg­ ulators, who have started looking for ways to bet­ ter match a fund to a specific investor’s risk tolerance. Greater disclosure or more precise labelling of funds could be on the way.

Solutions rather than products However, investors aren’t just looking for new funds–they’re increasingly looking for integrated solutions that help them reach their financial goals–and the fund industry is looking for ways to address that need. Most of the action has been in the retirement planning space. Target date funds have gained broad consumer acceptance. With target dates now seen as a “one-stop” solution for the accumulation phase, providers are now focusing on the pay-out phase–encouraging greater use of annuities. Outside the retirement arena, most investors are turning to financial advisors for help in craft­ ing solutions.

Regulatory focus on advice Recognising the importance of financial advi­ sors to consumers, US regulators are reviewing the rules that apply to them. Both the SEC and the Department of Labor, which regulates retire­ ment plans, are considering whether financial advisors should be held to a higher “fiduciary standard”, rather than to the “suitability standard” that now applies. At the same time, regulators are considering an official definition of financial planner. At the moment, anyone can use the title. Finally, a review of the fees that advisors receive for selling funds remains on the SEC’s agenda. If the 12b-2 proposal is approved as presented, front-end loads on funds could well become a thing of the past–further pushing advisors toward an asset-based fee model.

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Net sales In recent years, bond funds have captured the lion’s share of net Hong Kong fund sales (figures in US dollars million): 2008 2009 2010 2011 2012 (up to May) Equity funds -2,722 1,866 1,429 516 -679 Bond funds 371 2,021 5,283 4,814 5,524

Sally Wong

CEO, Hong Kong Investment Funds Association

We expect that the market will continue to be plagued by uncertainties. But we believe that mutual funds – thanks to the UCITS platform which enable providers to offer a diverse spectrum of offerings – can provide investment choices to suit the different risk profile of investors amidst a volatile market environment.

China Hong Kong perspective

Positive cooperation Increased cooperation between Asian and European bodies will help the funds industry grow across markets. Text Sally Wong Illustration Vanda Romão


ince the global financial crisis, retail fund sales in Hong Kong have picked up steadily and enjoyed robust growth. In the first five months of 2012, the Hong Kong fund industry registered gross and net sales of more than US$20 billion and US$5 billion respectively. These represent an increase of 15 and 34 percent over the respective periods in 2011. Prior to the crisis, equity funds had been the most  popular type of products, but since then bond funds have gone from strength to strength. In 2011, bond funds assumed the lion’s shares both in terms of gross and net sales (see graphics). Even when the global markets experi-

enced much gyration in the third and fourth quarters of 2011, bond funds continued to attract robust inflows. There are three key reasons for the increasing interest in bond funds. First, since the global financial tsunami, volatility in the stock markets may have spooked investors. Second, bond funds offer exposure to a wide array of markets, including emerging markets, where investors see the growth potential. Finally, a number of bond funds offer features such as regular distributions. This is attractive as there is a general search for yields in the extremely low interest rate environment.

Another important development is the renminbi business in Hong Kong. The first renminbidenominated authorised fund was launched in August 2010. Since then, about half a dozen authorised funds have been launched which primarily invest in “dim sum” bonds. Following the announcement by Li Keqiang, vice premier of the State Council, in August 2011, a series of initiatives had been implemented, including the introduction of the Renminbi Qualified Foreign Institutional Investors scheme. In December 2011, the Mainland authorities announced the RQFII pilot scheme that allows Hong Kong subsidiaries of qualified Mainland fund managers and securities companies to use renminbi raised in Hong Kong to invest in the Mainland securities markets. There are now about 20 RQFII authorised funds and they are all Hong Kong-domiciled. Meanwhile, the China Securities Regulatory Commission has approved two cross-border ETFs and more of these products are in the pipeline. All these initiatives reaffirm the central government’s support of Hong Kong’s development as the nation’s offshore renminbi business centre.

Gross sales Since the global finance crisis, Hong Kong investors have shown increased interest in bond funds (marketshare figures include balanced funds, money market funds and fund of funds): Equity funds

Bond funds

Equity funds (Gross sales US dollars million)

Bond funds (Gross sales US dollars million)


2012 (up to May)







64% 59%





27% 16,643



11,574 8,883 2,930

 — September - October 2012





Source: Hong Kong Investment Funds Association


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2012_format_ANG_230x300_pub.indd 1


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Challenges to collective investment products The financial and banking crisis is changing all segments of the financial world in many significant ways. Text Eddy Wymeersch Illustration Vanda Romão


oday’s very low interest rates are changing many of the fundamental assumptions underlying investment structures and decisions. When a fixed return on investment has been promised–a frequent feature of life insurance products, and for some pension products as well–then low interest rates–and these days even negative rates–make it almost impossible to achieve longer-term contractual objectives. Increasing the risk profile for higher returns is not an option: it is prevented by regulation–e.g., including more equity–or it is more risky. Firms may be able to continue to weather the storm for several more years, but in the end they risk becoming more like a Ponzi scheme, with the last investors leaving the scheme taking all the losses. There is an urgent need to have this issue openly discussed, first with a view of solving the financial challenges, but down the road to see how these changes will affect the social balances in our societies. And these low rates will result in significant stress on the employers that have to offer a backstop for the shortfall in retirement provisions. Their annual accounts will be considerably affected. Existing insurance contracts with a fixed term may enjoy a better risk cover. New contracts should be offered at a much lower return, and will be quite difficult to sell. Reducing some of the relative retirement benefits is already on the table in some places, but ultimately the entire system may have to be revised. Oddly enough, the system of state funded pensions might reappear as the primary retirement regime. In the investment fund segment, portfolio risks are ultimately born by the investors, leading to a clearer allocation of risks. But there remain some other concerns. Money market funds are closing for lack of return in this low interest rate environment. Banks have a comparable problem as their deposits at the central banks are interest free, and in fact bear a negative yield, which is already triggering a reduction in their deposits at the ECB. This raises the question of where investors will have to address themselves to find a safe, equally liquid and reliable counterparty. In most jurisdictions, they cannot go directly to the central banks. But they can invest in government bonds, not an attractive proposition as bonds carry a negative interest rate, others presenting definite

 — September - October 2012

risks. Their yield may be driven down while in the opposite direction a real estate bubble may build up. In the end and oddly enough, the only safe investment remaining may indeed be central bank notes! But would that be a desirable outcome? And would that be risk free?

Longer term business models Investors in alternative investment funds are often contractually obliged to stay on board, allowing managers to make good in a subsequent period. In the UCITS field, investors can exit any time. This often leads asset managers to simply emulate the benchmark, and results in the investors bearing the liquidity risk. The last investor to exit will have to bear the “portfolio” risk, any shortfalls falling on his head. Is this business model well conceived? Should it be the exclusive model? In the AIF space investors commit to remain in the fund for an extended period of time, or the manager can prevent individual exits. Should one not consider a similar approach for UCITS, with UCITS being offered with a clause obliging investors to stay in the fund whether for a predetermined period, or at least until after giving notice? As an alternative the fund shares may be traded on an organised market allowing investors to exit without touching the investment portfolio itself. As is the case with ETFs, exit from the fund may go along with exiting through the market. This longer-term approach will engage investors and fund managers to become less fixed on the day-to-day price movement. In a different business model more attention is paid to the long-term growth of the portfolio securities, e.g., due to improvements in corporate governance. In the absence of this short-term redemption requirement, funds could play an active role in delivering long-term capital. A change in approach would have far going consequences for both the funds’ investment activity, the markets where their securities are traded, the financing of the investees, and finally the overall economy.

Change in orientation The UCITS formula has been very successful in many parts of the world. It was the remarkable achievement of the joint effort of the industry, financial specialists and asset managers, sup-

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“They risk becoming more like a Ponzi scheme” Eddy Wymeersch

Professor, University of Gent; former Chair, CESR

ported by the European and national regulators and supervisors. However, many funds essentially have the ambition to match the benchmark, and only a few outperform it. I do not underestimate the difficulty to outperform, but is it not simpler to invest directly in the benchmark through an ETF, that is less expensive, both in terms of access and of management? Moreover, in these difficult times investors do not necessarily pursue outperformance, as they would already be satisfied if the value of their investment is maintained. Most funds, however, do not include maintaining value as their stated objective. The role of disclosure for purposes of investor protection is now being discussed. For many years the regulations generally that disclosure was

the right way to protect investors: they should be able to fend for themselves on the basis of true, fair and comprehensive disclosures. Ultimately as no one knows what is a good, proper investment, so it is up to the investors themselves to decide how much risk they want to take: this was the old doctrine of “caveat emptor”. It has many advantages: it obliges the offeror to submit full, relevant information; it obliges the investor to do his “homework”; and does not restrict the types of products to be offered, thereby contributing to innovation. From the supervisory side, it reduces the risk of the supervisor to be held liable for allowing “unsuitable” products. Recently proposed European regulations take another stand: investors should be prevented

from being exposed to products that are too risky, not appropriate for their risk profile. Therefore financial supervisors–at least in the field of securities, but not in insurance–have the right to suspend or restrict the offering of certain instruments financial activities that constitute a “threat to investor protection or to the orderly functioning and integrity of financial markets or to the stability of the whole or part of the financial system in the Union,” as stated in the Mifir rules. Whether protection should be ensured by disclosure, or by more substantive, “merit”–some will say “paternalistic”–supervision is debatable, excluding some investors from some of the more sophisticated products. European regulations seem more and more to go in the latter direction, probably due to the increasing wealth of investors and their interest for all sorts of sophisticated investment products. The attitude of representatives of financial groups is one who does not act anymore as the person of confidence, but as a salesman essentially interested in selling the product and ultimately in his fee on the transaction. Legislators are concerned about the numerous cases of misselling, and want to better protect investors. But is this to be done by prohibiting certain products or services? Indeed, what distinguishes a good from a bad product? Much, if not all, depends on the characteristics of the product, of the investor’s capacity of analysis and of the investment advisor approach. And will this type of intervention be ex ante–a serious threat to innovation–or only ex post? One can only hope that the competent authorities will make a moderate use of these powers.  September - October 2012 —  



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Investor protection

Beyond systematic risk In taking an approach based mainly on prudential regulation, the commission risks addressing only part of the issue and–worse–confusing the investors it is trying to reinvigorate. Text Jean-Baptiste de Franssu Illustration Vanda Romão


nvestor protection has been the rallying call of regulators and policymakers since the financial crisis took hold. Failure to strengthen it will contribute to European economic growth remaining elusive and investors to shy away from investing in long term financial products. Yet so far the European Commission’s initiatives have somewhat missed the mark. The commission is drafting regulations around investor protection. Some, such as Mifid II or ICSD are advanced; others such as packaged retail investment products (Prips) and the Insurance Mediation Directive have only recently been released. We are told these different pieces of regulations should take a harmonised view of relationships between providers, distributors, advisers and investors to give investors the right balance of protection. The reality is that this overall initiative has adopted a piecemeal approach and has been protracted. It also hardly addresses investor protection issues at the point of sale. As a result, for the foreseeable future protection and transparency rules will vary depending on the product, the distribution channel an investor chooses and the country where he invests from. This patchwork structure will encourage regulatory arbitrage where the most transparent channels and products (such as UCITS) will be the most disadvantaged. This is hardly in line with fair competition ideals. Additionally, more must be done to improve the relationship between investors and their advisers and providers. The commission has focused on disclosure and inducements in Mifid II. Yet it should take a broader approach embracing the definition of advice, independence, sales force training and professional qualification and the product launch process. These ideas need to extend into Prips to identify all the products that should be regulated, and their distribution mechanisms to ensure a level playing field. If it seems that a ban on inducements will ultimately occur across Europe as a way to respond to conflicts of interests, it is probably at this stage too early a move for most European markets. In addition, and as various market experiences around the world have demonstrated, it takes a lot of effort and thorough legislative and regulatory work to successfully implement such a ban. To that extent, Mifid II should rather focus on hard disclosure of such inducements in addition  — September - October 2012

“This is hardly in line with fair competition ideals” Jean-Baptiste de Franssu

Chairman, INCIPIT

to the rules that exist for disclosure at the point of sale: once or twice a year, wherever they are based in the EU, clients should receive a simple statement indicating the amount of fees received by the advisor for which type of services. Such an intermediary step would contribute to ensuring that an appropriate level of advice services remains available in the interest of retail investors whilst disclosing clearly the cost of that service. In the long term this would contribute in a pragmatic way to finan-

cial education as no rules can adequately address retail investors’ lack of knowledge. Yet, the regulatory framework being devised today will neither tempt investors back, nor adequately protect those that do return. Indeed, it risks adding cost through an overly complex set of mismatched rules that are limited to a few narrow initiatives and bring about unfair competition with an uneven level playing field between member states. It would be refreshing to see the views of panEuropean policymakers, regulators, Prips providers, distributors and investor associations coalesce into a single investor protection blueprint. The resulting regulatory initiatives would go well beyond provisions contained in the current draft of Mifid II and respond to the long-term need for a level playing field of investor protection that any fully functioning saving market requires. Such a move would also demonstrate to European citizens that it is the ambition of Brussels to draw lessons from the financial crisis that go beyond addressing systemic risk issues, and that deliver concrete tangible improvements to their daily lives.



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Looking east

The survival guide to the Asian fund industry Winning in tomorrow’s most promising marketplace. Text Justin Ong Illustration Vanda Romão


hile not entirely immune to market volatility and the global economic crisis, Asia remains a favoured destination for those seeking to tap into the world’s fastest growing wealth in the world today. The region’s economies have remained resilient, with the rising middle classes in countries like China, Indonesia and India growing wealthier and getting ready to dip their toes into the new world of investment funds. Asia now has the largest number of wealthy individuals in the world, and it will not be long before Asia’s wealth exceeds that of the United States in dollar terms. The current mutual fund penetration rate in Asian households, as a percentage of household wealth, is far below that in the West, ranging from four to eight percent as compared to approximately 16 percent in Europe and the US in aggregate. In this regard, the long-term prospects for Asia’s mutual fund growth looks promising for those who are prepared to commit to a sustainable Asian strategy. Asian investors are also on the lookout for innovative fund ideas, and there are strong opportunities for those who can provide creative and high-performance products. The latest cross-border exchangetraded funds (ETFs) in China, launched by two local fund houses, quickly raised about 8 billion US dollars in total assets. Investors are now looking forward to the forthcoming cross-border ETF launches in China and the renminbi qualified foreign institutional investor ETFs in Hong Kong. Other countries in Asia such as Malaysia, Thailand, Vietnam and the Philippines are watching these developments closely and players should expect more changes in Asia in the future. While Asia’s fund industry represents a significant growth opportunity for international asset managers, it is not without challenges. Firstly, distribution in the region is not straightforward. The regional market is geographically fragmented and large consumer banks dominate distribution in some countries, while securities houses are the main channels of distribution in others. The une — September - October 2012

ven playing field and local cultural nuances, which can require local knowledge and networks to gain access and market shares, will represent a challenge to any newcomer. Fees, retrocessions and charges are negotiated individually; since asset managers remain bound to a distribution oligopoly, profitability is still a high hurdle for many. Fund investors’ preferences also vary from one country to another on account of differing investment maturity levels, making it difficult to have a single distribution and product strategy across Asia. This is why country-specific solutions and approaches are often needed. The high risk/high return investment mentality among Asian investors also contributes to fast fund inflows and outflows, while the rapidly changing demographics in Asia will require better product innovation and solutions to suit investor needs. The local regulatory environment is also continually changing throughout Asia, with new rules on ownership, sales practices and product guidelines. Regulatory scrutiny is making fund launches and sales tougher. In Hong Kong, non-standard funds are subject to a much longer approval process, while in Taiwan foreign fund managers are likely to be required to increase sales and investment process substance locally if they want to continue marketing offshore funds to retail investors. All in all, Asia provides significant opportunities for those who are prepared to invest and develop their footprint over the long term, and adapt their business practices and expectations to the Asian environment. Those with ambition to succeed must also build their business onshore– it is no longer enough to operate remotely and rely on networks; one must become “local” to build longevity and create a brand able to compete with the best in the business.

Much ado about something? Many areas are already aware of the Asia Funds Passport Initiative, introduced in late 2010 by the

Australian Treasury at the APEC Leaders meeting. This initiative is still work-in-progress. Although nothing concrete has emerged yet, the APEC Finance Ministers group has issued supportive statements to continue developing the proposition. Another version of a cross-border funds framework has recently surfaced, with the Monetary Authority of Singapore (MAS) issuing a draft consultation paper setting out the basic framework, standard requirements and product restrictions for the mutual recognition of collective investment schemes under the ASEAN Capital Markets Forum. The Association of Southeast Asian Nations, or ASEAN, was established on 8 August 1967 and now comprises Indonesia, Malaysia, Philippines, Singapore, Thailand, Brunei Darussalam, Vietnam, Laos, Myanmar and Cambodia. The MAS draft consultation paper is the first piece of the puzzle which may result in a framework emulating much of what the UCITS vehicle and framework has done for the EU albeit on a much smaller scale than a true pan-Asian initiative as proposed by the Australian Treasury. In the ASEAN proposal, qualified collective investment schemes authorised and managed in member jurisdictions may be offered in other host jurisdictions through a fast-track process, although application for recognition will still need to be submitted to the host jurisdiction regulator. A number of features have also been introduced for discussion, covering a wide range of areas such as operational requirements for the fund promoter and the trustee, product restrictions, disclosure requirements as well as governance requirements applicable not only to the fund promoter and trustee, but also to the fund auditor and fund promoter. It is early days and much work is still needed before a concrete proposal agreed by all ASEAN member states can emerge. Questions are also being raised as regards to some of the limitations imposed on the investment restrictions and reporting requirements. Yet, it is encouraging

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“It is no longer enough to operate remotely” Justin Ong

Partner, PwC Luxembourg

All in all, the introduction of the ASEAN crossborder funds initiative should not be seen as a threat to the UCITS brand in Asia. Currently, the larger ASEAN member nations such as Malaysia, Indonesia and Thailand are not open to direct distribution of UCITS funds. It would be interesting to see whether the final product of the ASEAN cross-border funds initiative will allow funds domiciled in jurisdictions such as Singapore, created as feeders funds into Luxembourg or Dublin UCITS funds, to be recognised for distribution in these ASEAN markets, thereby creating an opportunity for UCITS funds to access these regional markets indirectly without the need to create a local fund in each jurisdiction.

Survival in today’s Asian marketplace

from an Asian perspective to see such efforts starting to take shape, as local and indigenous fund managers have long complained about the uneven playing field in their own region, in which they have less access to regional markets than foreign offshore funds. Many players are adopting – or considering – the “round-tripping” route, whereby funds are established in Luxembourg or

Dublin and re­routed back to regional markets in Asia such as Singapore, Hong Kong, Taiwan, Korea and Japan for sale to retail investors. Interestingly, Thailand has recently announced that it would soon approve the ASEAN crossborder fund initiative, initially for institutional and private client segments, with approval for retail investors planned for later in the year.

Understand your marketplace: each Asian country is different and appreciating the individual cultural and investment environment is critical. Choose your distribution relationships carefully: the right person in the right place makes all the difference. Be onshore: there is nothing like showing a serious commitment to your customers; offshore servicing demonstrates you don’t care enough about them to invest in being there. September - October 2012 —  



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“No reasonable person could raise objections” Lou Kiesch

Partner, Deloitte Luxembourg


UCITS IV: the overlooked efficiency package? Regulatory requirements are rising, but they are also creating opportunities for the investment industry. Text Lou Kiesch Illustration Vanda Romão


here are currently as many as 32 initiati­ ves, legislative projects, upcoming direc­ tives and regulations facing the financial sector. These range from measures designed to increase the stability of the sector with measures such as Solvency II and Basel III addressing capi­ tal requirements, to provisions aimed at investor protection written into instruments such as AIFMD and UCITS V. And when the legislative process of the EU is not enough, there are the overlapping require­ ments of Dodd-Frank and FATCA at the interna­ tional level, and other purely national contributions aimed at the same goals, but pursuing their own paths and direction towards… what precisely? The stated aim is to protect the consumer both at an individual level and at a collective level, in the role of taxpayer, from inappropriate invest­ ments and from shouldering the burden now and in future generations of weaknesses in the capital  — September - October 2012

markets born of excess. No reasonable person could raise objections to such high aspirations. If by adding cost and complexity via regulation to this already explosive mix, the current tide of regulation further deteriorates the risk/reward profile in attracting available savings into produc­ tive investment, then the financial sector will indeed be a desert, and the victory for investors and markets alike pyrrhic. Growth and success are not nebulous con­ cepts to be left to populist posturing; they are the fruits of judgement, discernment and industry. Nowhere is this more true than in the passage that UCITS as a global brand must forge through current difficulties to fulfil its potential role as a catalyst for productive investment. If UCITS grew from nothing to a multi-trillion export indus­ try over a mere two decades, it is because opportu­ nity was identified at grass roots, by know­ledgeable market practitioners and by astute investors alike.

It should not be forgotten at a time when much proposed legislation is top down, that the provi­ sions of UCITS IV were inspired by what the industry itself believed necessary to grow the product to the next level of efficiency and secu­ rity. The industry and investors asked for UCITS IV. It is up to that same industry to make best use of what it has obtained. For within UCITS IV there is a central core around the “efficiency package”–the twin pillars of the Simplified Notification Procedure and the Key Investor Information Document. Through the Simplified Notification Proce­ dure, products may be offered to investors when and as they need it, to meet the rapidly changing circumstances of international markets; instead of limiting investor choice it will enrich it. Via the KIID, the investor has the necessary tool to make balanced and informed judgements. Taken in isolation, either may seem an additional layer of administration and cost; brought together the necessary synergies are created to achieve genu­ ine progress. At the end of the day, regulation, legislation, product itself can only go so far. It is the use that is made of these elements that can bring success. Nowhere is this more evident than in Luxem­ bourg. This country has brought something essential to UCITS that has allowed it to “punch far above its weight” in turning raw materials into value. That is its savoir faire. The building blocks were there for any country to use, but Luxem­ bourg has made the UCITS product its own through that concentration of competence and skills that within its own version of the square mile offers a range of abilities and complementary ser­ vices unequalled in Europe. By deploying those skills in the elaboration of the KIID, by continuing to build the cross border distribution infrastruc­ ture through registration and market expertise, Luxembourg can make so much out of so little. When the dust settles on the current debates and upheavals, if Europe continues to have a thriving internal and external market in financial services, it will be in no small part due to those synergies, and that quality that have created the label– “UCITS–made in Luxembourg”.

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New research

East moving west: the Chinese dimension Chinese asset managers’ European strategy. Text Michael Ferguson Illustration Vanda Romão


weeping regulatory reforms expected from the Chinese regulators are to further open up the Chinese asset management industry, allowing Chinese asset managers to expand their businesses. Foreign firms are queuing up to partner with Chinese financial service firms, both to enhance their service offering at home and to get a foothold in China. During the second quarter of 2012, Ernst & Young interviewed c-suite executives of some of the leading Chinese asset managers to understand their overseas expansion strategy. We found that they have defined strategies to overcome the challenges and take advantage of the opportunities to enhance their position in the Asia region, but are less clear on how to get a foothold in Europe. All the Chinese asset managers we interviewed offer a range of products, such as mutual funds and management accounts, although the diversity of the products is limited by regulatory requirements. Their assets under management ranged from two to more than 200 billion renminbi. All of the respondents view overseas expansion as a key element of their business strategies in the next three to five years despite their successes in the Chinese market. Seeing foreign firms expanding their footprint in Asia Pacific has intensified Chinese asset managers’ desire to expand their geographical coverage. Furthermore, as few Chinese asset managers have expanded internationally to date, many of them are keen to gain a first mover advantage. The majority of Chinese managers are confident in their investment expertise and capability in the Chinese market. They believe that they can use this competitive advantage over western asset managers to build brand names in the global market and, with full liberalization of the RMB is still in progress, attract international investors to their RMB-denominated funds, while at the same time offering a wider range of products in China. They believe that they have competitive investment strategies, leveraging their insights into  — September - October 2012

their home markets, which will attract international investors looking for a gateway into the booming Chinese and Asian markets. A number of Chinese asset managers also believe that their current and future investors will favour a more balanced global asset allocation. They see plenty of rewarding investment opportunities outside China, with the European market representing an opportunity to build up their overseas investment capabilities in mature markets.

A first step outside The Chinese market is dominated by retail investors with the institutional market being very limited. In China, publicly offered open ended mutual funds are the most common vehicles. As the market is dominated by retail investors, banks represent around 70 percent of the distribution market, with the rest shared by securities companies and the fund managers themselves. Direct and online marketing is becoming more popular with both institutional and retail investors. Despite a recent regulatory change which has allowed third party distributors, the managers expect that banks will continue to dominate and that distribution will remain “expensive” for independent asset managers for quite some time yet. Since the financial crisis, asset managers and investors worldwide are hoping to take advantage of the growing importance of Asia Pacific markets. A new wave of capital from Europe and North America is heading for the region, leading both local and global firms active in Asia Pacific to develop their distribution capabilities. The limited distribution channels in mainland China are driving Chinese asset managers to go abroad. As a first step, a number of Chinese fund managers have, over the last four years, established a presence in Hong Kong. Hong Kong is seen as an offshore RMB centre, an asset management centre, a major investment destination and a talent pool. A Hong Kong presence makes it easier for international investors to access Chi-

nese securities. Chinese managers can therefore use their Hong Kong platform to offer Chinese products – i.e., products investing in Chinese assets – to international investors. The major challenge for such Chinese managers is gaining access to European and international distrib­ ution channels, so they are focusing these Chinese products primarily on institutional investors. In Europe, Chinese managers see their greatest opportunities in the United Kingdom, followed by Luxembourg and France. About half see opportunities in Germany, and also opportunities in the Nordic countries and Switzerland. Outside Europe, Chinese managers intend to target investors in the United States, Hong Kong and Korea, followed by the Middle East, Japan and Singapore. Above all, Hong Kong offers Chinese asset managers an opportunity to learn from the depth of experience of its asset management industry, but perhaps also as a springboard to regional, or even global, expansion.

Looking west Ernst & Young’s 2012 European attractiveness survey found that the Eurozone crisis is likely to foster increased investment into Europe from emerging markets. China, in particular, is expected to increase its level of investment in the Eurozone as assets come to the market. Few Chinese asset managers have launched “European products,” i.e., products investing in European assets. Where they have, the products mainly target institutional mainland Chinese investors. However, European products are part of the development plans of many Chinese asset managers, primarily targeting institutional investors, both in China and international investors through Hong Kong. Chinese managers’ preferred strategy to launch European products is to establish a physical presence in Europe. Many Chinese managers have, for some time, been working on setting up in

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“Many of them are keen to gain a first mover advantage” Michael Ferguson

EMEIA Regulated Funds Practice Leader, Ernst & Young

Europe “behind the scenes” so as not to compromise their development strategies. Some managers are pursuing another strategy: collaborating with European asset managers or banks. However, their primary concern is that such collaboration will either be expensive or mean sacrificing some “flexibility”. We expect Chinese managers to continue to develop bilateral or even multilateral distribution agreements, espe-

cially in more mature markets where new entrants find it particularly hard to gain a foothold. In the long term, we expect Chinese asset managers to pursue acquisitions in Europe and other developed markets, as the surest means to lock in both product manufacturing and local distribution capabilities. Potential obstacles do remain however, including how to ease the concerns of regulators, co-investors and even the

general public when a foreign firm takes over an established European financial institution. While European asset managers and banks are keen to seize the opportunities to cooperate with ambitious Chinese asset managers, not all are “attractive” or “trustworthy” in the eyes of a Chinese asset manager. A strong brand name with substantial assets under management significantly helps boost the confidence of their potential Chinese partners. Proven track record, demonstrated investment expertise and capabilities are seen as essential. Chinese managers want to learn from their partner to enhance their investment research processes, sales strategies, risk management, control framework and other operational and management areas so as to achieve international standards. “Chemistry” – the ability to adapt to each other’s difference in investment philosophies and work together – is vital when establishing a partnership. A key challenge facing Chinese managers looking west is that, compared with current business models and product ranges, launching European products such as UCITS is relatively complex. Secondly, Chinese managers have difficulty developing a distribution strategy for their European products which cannot be distributed in mainland China directly due to regulatory restrictions. Overall, Chinese managers are confident that they will be preferred by investors who want to benefit from China’s economic boom. September - October 2012 —  



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“UCITS are likely to enter a new era” Freddy Brausch

Partner, Linklaters Luxembourg


UCITS V on its way Proposed retail fund regulations have been published, and they share much in common with the draft rules for alternatives. Text Freddy Brausch Illustration Vanda Romão


n 3 July 2012, the European Commission released the long-awaited proposal for a UCITS V Directive. The proposal aims to strengthen investor protection by focusing on the UCITS depositary role and liability, remuneration of UCITS managers (not dealt with here), and sanctions for non-compliance. Some had hoped that shortcomings – there are some – under UCITS IV would be tackled on this occasion. This will not be the case. It is rumoured that more might come, though this will not be under UCITS V. The proposed directive, attempting to clarify the requirements applied to a UCITS depositary, heavily relies on – the much debated – provisions under the AIFMD, going sometimes one step further.

UCITS depositary role and liability The UCITS depositary regime is clarified under the proposal (appointment of a single depositary for each UCITS; written contract with the depositary; rules establishing the flow of information  — September - October 2012

for the depositary to perform its functions) as are the entities eligible to serve as UCITS depositary (EU registered credit institutions and certain EU MiFID authorised investment firms). The obligations of the depositary (monitoring and oversight roles; proper monitoring of cash flows; safe-keeping of financial instruments and other UCITS assets) are also clarified. The introduction, taken from the AIFMD, of safe-keeping duties relating to financial instruments that can be held in custody and of safekeeping relating to other assets should be wel­comed by all. The required due skill, care and diligence in the selection, appointment, periodic review and ongoing monitoring of delegates by the depositary do not fundamentally deviate from the depositary’s present situation. The enlargement of the scope of delegates beyond the traditional network of sub-custodians is not without concern though to the community of depositaries. The same goes for the proposed provisions on the liability regime of UCITS depositaries. The strict liability regime (with now a reversed burden

of proof, the onus being on the depositary) will, for most depositaries, be a major departure from the presently applicable liability regimes they are used to. The duty of restitution for lost financial instruments in custody (safe where the depositary can prove that the loss arose as a result of an external event beyond its reasonable control, the consequences of which would have been unavoidable despite all its reasonable efforts to the contrary), introduces a standard on the depositary that is particularly tough, some claim unreasonably tough. They argue that the impact of the proposal on pricing – where fund products are already at a disadvantage, compared to other financial products – will ultimately harm the fund product. The depositaries argue further that beyond pricing issues, the investment in less developed and hence more risky countries by their fund clients may result in certain fund products having to be discontinued. Finally, depositaries are worried by situations where the depositary may have to accept liability for an agent over whom the depositary has little or no control. Same where the depositary’s liability may be at stake for the keeping of certain types of collateral. It may further be the case of the depositary’s potential liability for third-party fraud and in case of a potential liability in a “meltdown situation”, which are departures from the present regime. The debate among the several European lawmaking bodies towards the adoption of the proposal will be the subject of much attention from the industry in all its several constituencies. It is unlikely though that the standards the commission is endeavouring to set in its proposal will be materially altered during the legislative process. UCITS are likely to enter a new era.

Sanctions The third element of the proposal introduces rules similar to those that have been included in all the commission’s recent proposals in the context of its horizontal policy making.

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AIFMD: Opportunities for Luxembourg The Grand Duchy has yet another chance to be the gateway to the EU. Text   Claude Niedner Illustration Vanda Romão


he Alternative Investment Fund Managers Directive (AIFMD), which came into force on 21 July 2011, forms part of a European programme to extend regulation and oversight to all actors and activities that embed significant risk. Among such actors featured in the AIFMD are managers of alternative investment funds (AIFs). AIFs comprise for the most part hedge funds, private equity and real estate funds, but have been defined broadly so as to include in principle all funds that are not regulated under the directive governing undertakings for collective investments in transferable securities (UCITS, i.e., retail funds with a passport for EUwide distribution). The AIFMD will significantly change the legal framework for asset managers wishing to manage AIFs and market them to investors. First, all managers of AIFs managed or marketed within the EU, including those which are domiciled offshore, will need to be registered and comply with the relevant provisions of the directive, including strict authorisation requirements, operating conditions, organisational rules and transparency requirements. Second, managers domiciled in the EU will benefit from a passport as from July 2013 allowing them to market EU AIFs they manage to professional investors across the EU. NonEU managers and funds will only be able to benefit from the passport after a transitional period, at the earliest by 2015. Between 2013 and 2018, they will be allowed to market the AIFs they manage in the EU by using national private placement rules, subject to complying with a certain number of provisions of the directive, such as transparency requirements and cooperation agreements to be entered into between the relevant authorities of the manager and the home state authority of the AIF. The AIFMD, by creating a harmonised European framework, will permit Luxembourg to stretch its pan-European distribution approach alongside the UCITS model and to offer alternative asset managers attractive structuring opportunities. By granting a passport for the marketing  — September - Octobrer 2012

of AIFs to professional investors within the EU, the AIFMD indeed also offers Luxembourg an opportunity to emulate its long-standing track record in retail cross-border investment fund distribution by becoming a pan-European and global distribution platform for alternative investment funds.

ties and the investors. Unlike for funds of other jurisdictions, these requirements will not significantly impact Luxembourg UCIs, SICARs or SIFs, as they are already subject to similar requirements under Luxembourg regulations.

Existing product regulation

Also, a number of requirements in the directive are UCITS-inspired and give Luxembourg a possibility to leverage on its strong UCITS position. In particular, it is significant that the operational requirements imposed by the AIFMD on an alternative investment fund manager (AIFM) are similar to those applicable to existing UCITS management companies and service providers, notably in terms of substance and operating conditions. Since UCITS management companies shall not be required, in order to be authorised as AIFM, to provide information already provided when applying for authorisation under the UCITS regime, they can easily develop their business in the alternative sector. In terms of risk management, adjustments rather than onerous changes are required to ensure compliance with the requirements of the AIFMD.

Given its longstanding position as an innovative financial place, and as the second largest fund centre in the world after the US in terms of assets under management, Luxembourg already offers a robust legal and tax framework for alternative investment activities through attractive investment structuring opportunities and its double tax treaty network. In terms of regulated investment vehicles, in addition to Investment Companies in Risk Capital (SICARs) governed by the 2004 law and the Part II funds of the 2010 law applicable to non-UCITS structures, the specific legal regime for Specialised Investment Funds (SIFs) created in 2007 has bolstered the alternative sector, facilitating the design of tailor-made investment structures for institutional, wellinformed and professional investors in the private equity, real estate and hedge fund sectors. At the end of 2011, the non-UCITS sector (Part II funds and SIFs) represented 435,974 billion euros of assets under management. The 1,366 SIFs accounted for nearly half of this amount with 235,515 billion euros of assets under management, according to the CSSF. The AIFMD indirectly regulates the product for which Luxembourg is a leading jurisdiction, and therefore offers significant development opportunities. In this context, there are a number of requirements in the directive which will apply at the level of the AIF, such as the appointment of a depositary or of a central administration agent, the compliance with transparency rules through the issuance of a placement memorandum or issue document, the production of an annual report and appropriate reporting to the authori-

Strong UCITS position

“Middle-office” hub Third country managers will only be able to benefit from the passport after a transitional period of two years, i.e., in principle starting in 2015. Between 2013 and 2018, they will be allowed to market the AIFs they manage in the EU by using national private placement rules of EU member states. However, private placements are subject to certain conditions, in particular the existence of cooperation agreements between the host country of distribution and the home state of the AIF. ESMA intends to centrally negotiate multilateral cooperation agreements. This raises the question of whether ESMA will be in a position to finalise such agreements for 2013. In this regard, it is worth noting that Luxembourg already benefits from an efficient net-

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“Adjustments rather than onerous changes” Claude Niedner

Partner, Arendt & Medernach

company, i.e., the AIFM, to delegate portfolio management to a non-AIFM, including third party managers, subject to the conditions of the directive. Luxembourg therefore provides alternative managers with an attractive location to develop their activities in and from Luxembourg.

Ambition of Luxembourg

work of memoranda of understanding and cooperation agreements with asset manager jurisdictions such as the US, Hong Kong, Switzerland, the Channel Islands and Singapore. Finally, under the AIFMD, once the passport becomes available, nonEU managers will be regulated by a “member state of reference” in addition to their home regulators. However, non-EU managers may face significant uncertainties as regards which EU member state will be their member state of reference, since the

designation of the member state of reference depends on a certain number of complex criteria provided by the directive. In these circumstances, AIFM-licensed Luxembourg management companies represent an opportunity for non-EU managers to create AIFM managing several AIFs for the purpose of benefiting from the AIFM passport in 2013 instead of 2015, and therefore using Luxembourg as a gateway to Europe. This will allow the management

The deadline for transposing the AIFMD into national law is 22 July 2013. As was the case for the implementation of the UCITS Directive into national law, Luxembourg is keen to become one of the first jurisdictions to implement the AIFMD and wishes to position itself as a first mover. The Luxembourg law is expected to pass parliament before the end of the year. The draft bill also includes an alternative package of other legislative initiatives, among which the possibility to structure AIFs in the form of a limited partnership which might in particular suit the needs of Anglo-Saxon asset managers and investors. This new structuring opportunity will indisputably contribute to attracting and developing a strong business model for AIFMs and the AIFs they manage. This article was co-written with Myriam Moulla, Senior Associate, Arendt & Medernach. September - October 2012 —  



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Tax debate

Forced to think differently The regulatory avalanche challenges the current modus operandi of the investment fund industry. Text Georges Bock Illustration Vanda Romão

“The industry should rightly fight”

In September 2011, the commission issued its proposal for an EU wide FTT. At a rate of 0.1% or 0.01%, the tax would be imposed on financial transactions involving financial instruments carried out by at least one EU based financial institution. Given the objective of this draft directive, the industry should rightly fight in the interest of investors that UCITS are exempt from FTT.

FATCA between two stools Georges Bock

Partner, KPMG Luxembourg

As far as US tax law is concerned, key improvements made by the FATCA draft regulations, issued in February 2012, are the additional categories of deemed-compliant financial institutions, which are subject to lighter compliance obligations. However, the conditions that need to be met in order to fall into one of those categories need to be adjusted. Otherwise only a limited number of investment funds will benefit from the deemed compliant status. Much the same can be said of the inter­ governmental approach which entails additional uncer­ tainties for funds established in the concerned countries (France, Germany, Italy, Spain and the United Kingdom, Japan and Switzerland) as the exact scope and rules are yet to be negotiated.

Double tax treaty challenges


mongst others, the financial transaction tax (FTT), FATCA and the Savings Directive may impose unprecedented compliance obligations on asset managers. At the same time, uncertainties when it comes to retroactive application of double treaties increases risks to operating funds. And yet, if properly managed the right to claim back unduly paid withholding tax – based on the Aberdeen case at the European Court of Justice – is the biggest tax opportunity the fund industry has been offered since many years.

Brussels In 2008, a draft proposal was presented by the European Commission with the aim to extend the current scope of the Savings Directive. If the proposed amendments are adopted, certain investment funds and structured products that are currently out of scope of the directive will be covered. Beyond the current status quo, amongst others, two other outcomes are possible: an automatic exchange of information without extending the  — September - October 2012

scope of the directive (the withholding tax method would no longer be available) and the extension of the scope of the directive and at the same time allow certain member states (e.g., Luxembourg) to continue applying the withholding tax system. In 2009, ECJ’s decision in the Aberdeen case (C-303/07) was a milestone judgment for the abolishment of discriminatory taxation of crossborder dividends. This decision provides a solid basis for all Luxembourg investment funds to reclaim withholding taxes unduly suffered in the member states where they have made investments. It is key to have a detailed and highly structured approach to ensure that the requests are successfully received and that cash is collected. In 2010, in the joint EFAMA/KPMG study, tax was identified as an obstacle to the implementation of UCITS IV Directive. Since then, modest progress has been achieved. But on the main issue – tax neutrality for investors on fund reorganisations – progress seems to have stalled. Therefore, improvement still needs to be made in order to safeguard investor’s interest.

The access to a wide DTT network is often considered as fundamental when assessing the attractiveness of a jurisdiction for investment activities. Based on the Luxembourg tax administration’s website, 36 treaty countries are now granting treaty benefits to Luxembourg SICAVs. Even if the evolution is globally positive, the principle of beneficial ownership remains in many cases an open issue. This was recently the case in Korea and China where new administrative practice tends to restrict or deny access to DTT protection for Luxembourg investment funds. The respective authorities are currently discussing the future and the impact on the Luxembourg funds.

The road ahead In a nutshell, tax challenges ahead are many and diverse. Funds need to closely monitor and actively manage the ever changing tax environment without losing sight of the great opportunities in the fund market.




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Business critical? It is high time to take an objective look at new media in financial services. Text   Tony Langham Illustration  Vanda Romão

“It’s not yet a way of life” Tony Langham

Chief Executive, Lansons Communications

Who to “like”

Good investment manager communication 1. Hugh Hendry of Eclectica’s electronic newsletters set out his highly idiosyncratic world views with such mastery of language; they are so more pleasurable to read than communication that merely pushes a product. 2. For nine months before launching a distressed loan fund, Albulus, a niche German investment house, produced a monthly blog/ newsletter. The views were well-considered, targeted at a sophisticated readership, supported with proprietary data and tightly written in a Lex-like style. 3. Ruffer Investments has a good website–so easy to navigate it is almost childish. Liongate Capital has a nice, simple look, while Artemis Investments is attractive, humourous and clear.


henever we make a presentation to a financial services company, there’s always a debate about social media. That’s hardly surprising as Facebook has grown to more than 800 million active users and Twitter to 100 million. This is changing the way business is done as organisations as diverse as Ford and Starbucks have reinvented their communications structures as social businesses, to benefit from this new world–the number one trend in social media according to Simon Rutherford, Managing Director of social media agency Cubaka (see box page 45, right “top trends in social media”. Some financial services companies lead the way in this space too. Corporate Insight’s 2012 Social Media Leaders report highlighted how  — September - October 2012

financial advisory firm Ameriprise offers an adviser search tool on LinkedIn, how online stock brokerage Zecco enables its customers to trade through Facebook, and that both E*TRADE and optionsXpress have launched social communities. Of the bigger brands, American Express, Fidelity and Citi often receive plaudits as do  Mastercard, Akbank and Jykse Bank TV. Yet some parts of the industry– particularly investment managers–lag behind. One reason for this is the outlook of senior management. Heather Taylor, Editorial Director of Econsultancy  noted that at LinkedIn’s inaugural Financial Services Summit this May only two of the six social media panellists had Twitter accounts themselves. Caroline Allen, editor of Investment Europe, believes that for financial ser-

Source: Phil Davis, FT Journalist,

vices companies, using social media is particularly challenging because public trust is so low. She adds that “we monitor twitter carefully, track the output of trade associations–ISMA and ALFI are effective–and industry leaders, and blogs from major asset managers. We like incisive, direct, open communication, and material that really has something to say. It is still rare to find it.” On the credit side Financial Times writer Phil Davis has found several examples of good communication in the funds industry and his highlights are summarised in the box above. Solace for those investment managers that lag behind is that the revolution that is sure to come, has not yet happened. The majority of wealthy investors, intermediaries, pensions consultants and institutional investors may use social media

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How to engage

Observations on social media and crises 1. The essence of social media is interaction, rather than simple delivery of content. The hard part is that social media is more unpredictable than traditional media. 2. Confusion reigns as to how to handle this new beast. The idea of “control” is absurd, since the whole point is that it has a life of its own that a firm hopes to harness for its own benefit. 3. The optimal strategy is to engage intelligently, remaining alert, relevant, flexible and professional. The critical point is that the channel is not the message. 4. Executives used to being in charge are naturally suspicious of a medium which exposes vanity, prejudice, half-truths and hidden agendas. 5. In cyberspace, size doesn’t matter, but reach does. As the traditional press lumbers into action, Twitter is delivering news, comment, pictures and video direct. Viral communication magnifies the speed– and tone–of the message. 6. In a “hearts and minds” media battle, relying on a nicely crafted press release or scripted conference to put your story is like waiting for history to be written before you engage. 7. The tyranny of social media is its insatiable appetite. One basic error is to set up channels and then neglect them, as if they will spring alive on their own. Another is to babble and spam, ensuring your firm is quickly un-friended and un-followed.

Source: Caroline Allen, Editor, Investment Europe,

and many of the tools of e-business, but it’s not yet a way of life. I’ve long contended that this new world will change the organisational fabric of the investment management industry. The communications structures of today–built around sales, marketing, distribution and PR–will be replaced by integrated cross-discipline ones aimed at investors, intermediaries, consultants and government with a small reputation management function. For now though, investment companies grapple with new media at different paces. Some have hooked all of their investment managers to the world of film, others blog effectively, while many do not even have effective Twitter feeds. According to Caroline Allen, “the latest financial upheaval has provoked a new way of doing

What to watch

Top trends in social media 1. Social business: examining objectives, processes, resources, budgets and IT, to help an organisation reinvent itself for the social communications age. 2. Social search: innovations such as Google’s “+1”, integration of Twitter and author authority all serve to increase the social relevance of search results. 3. Collaborative consumption: if the social trend for coordinated purchase and ownership amongst consumers takes hold, a wave of social network innovation will follow. 4. A return to privacy: with further developments in “frictionless” sharing planned, consumers may begin to look for a “private” button to sit alongside “share”, “like”, and “tweet”. 5. Facebook continues to evolve: having paid 1 billion dollars for Instagram, great things are now expected from that tie-up, and with over 425 million users accessing Facebook from a mobile device every month we can expect the app to keep getting better.

6. Niche networks: Instagram, Pinterest, Tumblr, and Path are not yet household names, but they represent a growing number of niche networks–sites which will never be as big as Facebook but have enough appeal to attract millions of loyal consumers. 7. Compliance: social media marketing innovation is giving brand’s legal teams and industry regulators sleepless nights. Expect a number of products and services to be developed to help brands stay right side of the law. 8. HTML 5: by 2013 the number of HTML5capable browsers should exceed a billion, significant for social media as HTML5 will make the web quicker, more seamless and better integrated, meaning more capable and attractive websites and apps. Cue the next round of social development.

things. From governments to firms, future prospects depend on what ‘stakeholders’ think of how you react.” The box above, left, summarises Allen’s observations on social media and crises. Phil Davis says that at times, looking at their communication, you could be forgiven for thinking investment firms were clones of each other. “So few strive for originality or, perish the thought, to entertain. Some seem to think that publishing messages on Twitter or Facebook makes investment firms inherently more interesting, but it doesn’t.” He adds that many corporate websites seem to have been forgotten in the communications matrix. In the same vein, Caroline Allen believes that while channel and style are important, content is king. Phil Davis reflects that “fund managers needn’t always be provocative, but their presentations

Source: Simon Rutherford, Managing Director,

could be less formulaic and a little more thoughtful, creative and brave.” To coincide with ALFI conference in September, Lansons will unveil the results of industry research–among investors and senior industry figures–testing these hypo­theses. Our conclusion for now, though, is that while the wise are re-orienting their businesses to new media now–and the far-sighted have already done so–the business critical communications issues revolve around more fundamental issues. Today’s key questions are: is active management worth paying more for? What differentiates one fund manager from another? Why is your asset allocation approach superior to your competitors? The message, not the medium, will create commercial advantage, at least for now. September - October 2012 —  



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Flashback The previous Global Distribution Conference took place on 27 and 28 September 2011 in the Centre de Conférences in Luxembourg-Kirchberg.



Photos Luc Deflorenne 01. Jeannot Krecké (minister of econmy and trade) 02. Crown Prince Guillaume 03. Marc Saluzzi (Alfi) 04. Frank Velling (BankInvest) 05. Sally Wong (HK IFA)

06. Theresa Hamacher (Nicsa) 07. Thomas Flammant (UK Embassy in Luxembourg)


08. Roman Lewszyk (Atlantic Fund Services) 09. Paul Schott Stevens (Investment Company Institute)





— September - October 2012

Special alfi global distribution conference in association with nicsa & hkifa









10. Patrick Colle (BNP Paribas Securities Services)

14. Louise Bang Jespersen (Danish Ambassador)

11. Laurence Magloire (Morgan Stanley Investment Management Limited)

15. Thomas Seale (EFA)

12. Marc Meyers (Loyens & Loeff)

17. John Parkhouse (PwC)

16. Julien Zimmer (DZ Privatbank)

13. Paolo Martinuzzi (Clearstream Banking)

September - October 2012 —


Special alfi global distribution conference in association with nicsa & hkifa


September-October 2012 Published on September 18, 2012

special supplement September/October 2012



Cover Illustrations Vanda Romão


Aberdeen 28, 44 Accenture 45 Akbank 46 Albulus 46 ALFI 3, 5, 8, 37 46, 48 Allen Caroline 46 Alter Domus 17 American Express 46 Ameriprise 46 Arendt & Medernach 42 Artemis Investments 46 Atlantic Fund Services 48 Atoz 23

Alfi GlobAl Distribution ConferenCe in AssoCiAtion with niCsA & hKifA



Bang Louise 48 BankInvest 48 Berlitz 22 BNP Paribas Securities Services 48 Bock Georges 28, 44 Brausch Freddy 40

C Write to BP728 L-2017 Luxembourg


Offices 10, rue des Gaulois, Luxembourg-

Phone (+352) 27 62 12 62-1


Fax (+352) 27 62 12 62-84

ISSN 1992-4275



Director Guido Kröger

CEO Mike Koedinger

Art director Maxime Pintadu

HR Director Thierry van Ingelgom

Studio manager Stéphanie Poras

COO Rudy Lafontaine

Layout Monique Bernard (coordination),

Caceis 27 CESR 30 Citi 46 Clearstream Banking 48 Colle Patrick 48 Corporate Insight 46 Costanzo Gian Luigi 3, 5 Cubaka 46

48 32 6, 36 20, 24 48

Gaelle Huber



Phone (+352) 29 66 18-1


Fax (+352) 29 66 19

Phone (+352) 27 17 27 27


Fax (+352) 26 29 66 20

Editorial staff



Sales director Francis Gasparotto


Senior key account director Aurélio Angius

Mike Koedinger

Advertising account managers

Editorial director, editor in chief

Marilyn Baratto, Simon Béot, Charles-Louis

Jean-Michel Gaudron (-48)

Machuron, Frédéric Noël, Céline Toiseux

Sales management assistant


Nathalie Sohn

Aaron Grunwald

Sales assistant Céline Bayle

Illustrations Vanda Romão

Administration Isabelle Ney

Proofreading Sarah Lambolez

To reach employees by e-mail, please follow this model : Printed by Imprimerie Centrale, Techprint Please recycle. Finished reading this publication? Archive it, pass it on or recycle it.

E*TRADE 46 Eclectica 46 Econsultancy 46 EFAMA 28, 44 Ernst & Young 2, 38 ESMA 42 European Central Bank 8 European Commission 8, 28, 32, 44 European Court of Justice 28, 44 European Fund Administration 41, 48 European Parliament 8

F Facebook 46 Federal Reserve 26 Ferguson Michael 38 Fidelity 46 Financial Times 46 Finesti 29 Flammant Thomas 48 Frieden Luc 8

G Google 46 Grant Thornton 25 Grulms Fernand 3, 5 Crown Prince Guillaume 48


 — September - October 2012

M Magloire Laurence 48 Martinuzzi Paolo 48 Mastercard 46 Meyers Marc 48 Morgan Stanley Investment Management Limited 48

N NICSA Niedner Claude

3, 5, 8, 26, 48 42

Ong Justin 34 optionsXpress 46

P Parkhouse John 48 Path 46 Peter & Clark 33 Pinterest 46 PwC 34, 48

Q Ruffer Investments Rutherford Simon

46 46

S Saluzzi Marc 8, 48 Seale Thomas 8, 48 Securities and Exchange Commission 26 Stevens Paul Schott 48

T Taylor Heather 46 Taylor Phil 46 Tumblr 46 Twitter 46

U UK Embassy in Luxembourg University of Gent US Department of Labor

48 30 26

Velling Frank



I INCIPIT 32 Instagram 46 Investment Company Institute 48 Investment Europe 46 ISMA 46

Wong Sally Wymeersch Eddy

48 30

Z Zecco 46 Zimmer Julien 48

J Jykse Bank TV

L Langham Tony 46 Lansons Communications 46 Lewszyk Roman 48 LinkedIn 46 Linklaters 40 Liongate Capital 46 Lipper 8 Loyens & Loeff 48 Luxembourg for Finance 3, 5


Hamacher Theresa 26, 48 Hong Kong Investment Funds Association 3, 5, 8, 48

Illustrator and designer Vanda Romão is obstinate and dreamy. She devotes much of her time to her passion – illustration. With a degree in graphic design from the School of Arts and Technology of Lisbon, this young designer has already established a solid reputation in the areas of design and illustration. She has worked as a designer for numerous companies, consolidating knowledge and sharing experiences with other designers. Currently she is following a lifelong dream, and as a freelancer, devotes most of her time and effort to a personal project titled “Porta Amarela”, which she expects will be a grand success.

36 28, 44, 52 48


D Danish Embassy in Luxembourg de Franssu Jean-Baptiste Deloitte Do Recruitments Advisors DZ Privatbank

Kiesch Lou KPMG Krecké Jeannot


In this Index are all companies, people and advertisers mentioned in this book.

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Turning Complexity into Opportunity

© 2012 KPMG Luxembourg S.à r.l., a Luxembourg private limited company, is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

ALFI septembre octobre 2012  

Supplement paperJam ALFI Global Distribution Conference in Association with NICSA and HKIFA