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Organization of AIFM platforms Strategic considerations 17 September 2013
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Organization of AIFM platforms
Strategic considerations
17 September 2013
Organization of AIFM platforms Strategic considerations 17 September 2013
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Agenda
9.00 - 9.30 Introduction ► Michael Hornsby, EMEIA Real Estate Funds Leader
9.30 - 10.00 Optimization of Management Company platforms ► Michael Hornsby, EMEIA Real Estate Funds Leader
10.00 - 10.45 Key considerations for platform structuring - Case study 1: Luxembourg ► Robert White, Senior Manager, Assurance Services
10.45 - 11.15 Coffee break
11.15 - 12.00 Case study 2: A Pan-European asset manager ► Michael Hornsby, EMEIA Real Estate Funds Leader
Organization of AIFM platforms
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Agenda (cont’d)
12.00 - 12.15 Case study 3: Using a third party Management Company ► Kai Braun, Executive Director, Alternatives Advisory
Leader
12.15 - 12.30 Case study 4: Managing offshore funds ► Michael Hornsby, EMEIA Real Estate Funds Leader
12.30 Reception
Organization of AIFM platforms
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Introduction
Organization of AIFM platforms
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Introduction
Organization of AIFM platforms
► What are the main drivers of the overall strategic approach to structuring AIFM platforms?
Overall approach Set up a new AIFM to avoid legacy structure being contaminated by AIFMD
Used in specific circumstances
Convert an existing chapter 16 or 15 ManCo into an AIFM
Most popular
Set up a new AIFM because the current operating model combines non-AIFs with core AIFM activities
Used in specific circumstances
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Optimization of Management Company platforms
Organization of AIFM platforms
Page 7 Organization of AIFM platforms
► What are the key issues? ► Segregation of permitted activities
► AIFM Board composition ► Working out the practicalities of risk and portfolio
management ► To what degree can I consolidate my AIFMs to one single
entity? ► As an AIFM, how to deal with AIFs managed having an
independent board? ► Remuneration rules ► How to apply the proportionality concept in terms of number
of full/part-time employees?
Optimization of Management Company platforms
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Case study 1: Luxembourg
Organization of AIFM platforms
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Case study 1: Luxembourg
► Key facts ► Pan-European real estate manager ► 10 AIFs (EU AIFs) – 7 bn AuM ► Management companies established for each existing product ► Centralized risk management functions in the UK ► Portfolio management utilising advisory services from UK based
group company and network of local teams ► Headcount in Luxembourg: 12 ► Series of group level committees in place regarding key
functions such as risk, valuation and investment ► Service providers: Limited number of preferred service providers
Organization of AIFM platforms
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Option 1.a
Option 1.b
Convert each product level management
companies into AIFM
Create one new Lux Based Super AIFM
AIFM outsources to a third party manco
No
Yes Option 2
Comment
Not a viable option from an efficiency perspective
Preferred option in interest of efficiency and leveraging core functions
Not in line with Asset Manager’s global strategy
Case study 1: Luxembourg
Option 1 Asset Manager establishes it’s own
AIFM based in Luxembourg
► What are the structuring options available? ► What was decided? ► Why?
Rely on authorised third party management
company
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Case study 1: Luxembourg (cont’d)
► Key considerations of Option 1: ► Segregation of permitted activities
► Role and composition of AIFM Board and senior management
► Working out the practicalities of risk and portfolio management
► Implications of servicing all AIFs from one AIFM
► Establishing a consistent set of operating procedures
Organization of AIFM platforms
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Chapter 16
Non-UCITS
Segregation of permitted activities
Other
Chapter 16 + AIFM license
Segregated mandates
AIF
Management
AIF (in/out of scope)
Delegate
Management
Legend ManCo/AIFM manages UCI
ManCo/AIFM provides portfolio mgmt, admin or marketing services as delegate. ManCo/AIFM is not ManCo or AIFM of UCI
Discretionary portfolio mgmt or non-core services provided by ManCo
Non-core services provided in relation to UCIs
Mgmt of AIF Other
• Collective portfolio mgmt
• Risk mgmt • Administration • Marketing • Activities related
to assets of AIF
• Discretionary portfolio mgt
• Non-core: • Invest advice • Safekeeping and admin
of UCIs • Reception &
transmission of orders in financial instruments
Mgmt of UCIs
• Collective portfolio management
• Administration • Marketing
TODAY POST AIFMD
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Role and composition of AIFM Board and senior management
• Compliance to ensure that the applicable Laws and requirements are identified, policies and procedures implemented, and controls performed to ensure that the requirements are met
• Advice and support on any matter related to compliance
Compliance
• Implement risk management process
• Ensure management is regularly provided with an overall view of the risk profile
Risk management
• Ensure that the overall control, compliance and risk framework of the financial institution is adequate and effective
• Prepare audit plan • Issue recommendations • Follow-up
Internal audit
• Implementation of the general investment policy • Ensuring compliance with the AIFM Directive • Oversight of the risk management policy and its
implementation • Effective supervision of delegated functions
Independent functions
Senior management
Board of Directors • Ensuring compliance with the
AIFM Directive
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Practicalities of risk and portfolio management
Presentation title
Group
investment advisory
Group risk management
Additional new products or mandates
Luxembourg FCP SIF A
Luxembourg FCP SIF B
Luxembourg SICAV SIF A
Luxembourg SICAV SIF B
Board of Directors
Risk Management
Portfolio Management
Administration
Compliance Function
Group Internal Audit
Luxembourg Super ManCo
Investment advisory
agreement
Group capital
markets
Distribution
Risk analysis services
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AIF # 2
Lux Sarl
AIF #1
Board of Directors
Risk management
Portfolio management
Other activities
Compliance officer
Internal audit
AIFM
Use of different sources within the Group organization
Valuer
Depositary
Investments
Investments
Asset / property management
Due Diligence
Structuring
Treasury and financing
Research / sourcing
Inve
stm
ent A
dvic
e
AIFs
Risk management coordination Appoint AIFM
Risk reports
Practicalities of risk and portfolio management (cont’d)
Investment committees
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Case study 2: A Pan-European asset manager
Organization of AIFM platforms
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Case study 2: A Pan-European asset manager
Organization of AIFM platforms
► Key facts ► Large multi asset manager ► 400 AIFs (EU AIFs) – 100 bn AuM ► Multi asset classes ► 3 management companies operating in the EU ► Centralized risk management in the UK ► Portfolio management relying on local expertise, including
delegation to non-EU portfolio managers ► Headcounts 1000+ ► Series of global and local committees in place (risk, valuation
and pricing, investment committee, etc) ► Service providers: Limited number of preferred service providers
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Assumption 1
Asset Manager relies on the EU AIFM management passport
No
Yes Assumption 2 Option 2.a
Option 2.b
Option 1.a
Option 1.b
Convert each local management company
into AIFM
Create one new AIFM in each key hub
Convert an existing ManCo into a ‘super
AIFM’
Convert an existing Manco into a ‘Super AIFM’ with branches
Option 2.c Create a new super AIFM (possibly with
branches)
AIFM outsources to a third party manco
No
Yes
Rely on a third party manco Option 3
Comment
Preferred option Letter box entity test to be met
Asset Manager’s strategy is not to create new entities
Asset manager’s preferred strategy is to set up AIFMs in each key locations
Asset Manager’s strategy is not to create new entities
Not in line with Asset Manager’s model based on control
1
2
Case study 2: A Pan-European asset manager ► What are the structuring options available? ► What was decided? ► Why?
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Case study 2: A Pan-European asset manager
Organization of AIFM platforms
► Option 1 - Key issue for one AIFM: Governance ► Letter box entity test ► Duties of senior management ► Holding multiple functions ► Composition of the board
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Case study 2: A Pan-European asset manager
Organization of AIFM platforms
► Option 2 – Key challenges ► Selecting the location of the super AIFM ► Designing one set of operating rules ► Relying on a central risk hub ► Managing multi asset classes with different portfolio
management techniques
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Board – 4 people among which • 2 conducting officers (among
which 1 RM representative) • Global Head of Operations • 1 PM representative PM
function RM
function
Portfolio Management Controller
Investment Committee A
Funds and investments Funds and investments
Committees Members: • Existing members • Portfolio
Management Controller
• independent expert as necessary
Investment Committee C
• Establishes the strategy • Empowers management • Monitors overall compliance with
values and regulations
Key functions
• Ensure investment objectives, policies and parameters, investment strategy are set for each AIF managed
• Instruct and oversee advisors and delegates
• Oversee implementation of the investment strategy of each AIF
Portfolio management
Participates into
Reports to
BoD
Senior management • Implementation of the general
Investment policy • Ensuring compliance with the AIFM Directive • Oversight of the risk management policy and its
implementation • Effective supervision of delegated functions
MD Operations
Management Committee 2 Managing Directors
Oversight
Case study 2: A Pan-European asset manager
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Case study 3: Using a third party Management Company
Organization of AIFM platforms
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Case study 3: Using a third party Management Company
Organization of AIFM platforms
► Key facts ► Luxembourg based third party Management Company (Ch 16) ► 30+ AIFs – 20 bn AuM out of which:
►1 RE fund manager ►SICAV SIF ►Administration services provided by third party ManCo
► Multi asset classes ► Regulated and non-regulated products ► Risk Management function in place with UCITS experience ► Portfolio management mainly performed by different local
managers (clients of ManCo) ► 7-8 different depositaries
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Case study 3: Using a third party Management Company (cont’d)
Organization of AIFM platforms
► Key challenges for real estate fund manager: ► Deciding between own substance and rent-a-ManCo ► If own substance:
► Define overall organisation/substance in Luxembourg taking into consideration also tax substance
► Find right balance between own substance and outsourcing model (internal audit, reporting, administration)
► If rent-a-ManCo: ► Decision power (ManCo vs. Fund manager) ► Registration/authorization of fund manager in local market in
order to perform certain AIFM activities
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Case study 3: Using a third party Management Company (cont’d)
Organization of AIFM platforms
► Key challenges for third party ManCo: ► Align interests of all clients
► “Pollution” of small-sized fund managers? ► Part II funds? ► Portfolio management performed for some non-EU AIFs?
► Define service offering ► AIF vs. non regulated ► ManCo, Admin, Depositary, Reporting ► Streamlining of external service providers (depositaries) ► Building of risk management function knowledgeable in all
asset classes
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Case study 3: Using a third party Management Company (cont’d)
Organization of AIFM platforms
Part II UCI
FCP SIF
Sec Vec
Fund 10
Full AIFM “Excluded” AIFM (Σ AuM below threshold)
Fund 1
AuM < 100 Mio. EUR
AuM > 100 Mio. EUR
Fund 2
Fund 3
Fund 4
Fund 5
Fund 6
Fund 11
Fund 12
Fund 13
Fund 14
Fund 15
Fund 7 Fund 16
Fund 18 Fund 19
Fund 20
Fund 21
Fund 22
Fund 23
Fund 8 Fund 1 Fund 17
Fund 9
FCP SIF
Umbrella
SICAV SIF Fund 30
Fund 24 Fund 26
Fund 32 Fund 27
Fund 28
Fund 31
Fund 25
Fund 29
Securitization 1
Full AIFM “Excluded” AIFM (Σ AuM below threshhold) No AIFM needed (self-managed))
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Case study 4: Managing offshore funds
Organization of AIFM platforms
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Case study 4: Managing offshore funds
Organization of AIFM platforms
► Key facts ► US real estate manager ► Closed-ended funds domiciled in Bermuda managed
from US (in run-off) ► US domiciled open-ended core fund with some EU
investors ► Plans to invest in EU real estate markets with new
closed-ended products ► Plans to continue to distribute the open-ended fund in
the EU if possible
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Case study 4: Managing offshore funds (cont’d)
Organization of AIFM platforms
Options Pros Cons Move fund manager “onshore”
Create an “evergreen” platform for the future. Full and immediate access to all European markets
Significant investment especially if no existing footprint
No longer raise capital from European investors
Fund and manager not subject to EU regulation
Limits capital flows into the funds going forward
Opt in to the AIFMD as an offshore manager
Maintain existing infrastructure offshore with moderate adaptations
Only available from 2015 onwards
Create an EU feeder for an offshore master
Leaves master structure intact Feeder will only benefit from passport if master authorized
Use an authorized third party manager
Simple, quick solution May not be acceptable to investors as investment advisor loses ”control of the AIFM”
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Case study 4: Managing offshore funds (cont’d)
Organization of AIFM platforms
Options Pros Cons Rely on existing private placement regimes
No change required Private placement regimes are expected to be withdrawn or restricted before 2018. May not be acceptable to some EU investors.
Withdraw active marketing and rely on investors to connect with the product under their own initiative i.e. ”reverse solicitation”
No change required Legally a very risky option. Funds generally do not ”sell themselves”
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Case study 4: Managing offshore funds
Organization of AIFM platforms
► Solution ► Establish an EU manager and consider creating new
closed-ended fund range out of the EU using new Luxembourg partnership vehicle
► In the short-term, the new EU AIFM will provide general brand awareness which will support a “reverse solicitation” model of fund raising for the US core fund in combination with using private placement regimes for formal marketing campaigns in selected countries
► Consider seeking “equivalence” of the US manager in 2015 to fully benefit from passport.
Thank you.
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Contacts
Organization of AIFM platforms
Michael Hornsby EMEIA Real Estate Funds Leader +352 42 124 8310 [email protected]
Kai Braun Alternatives Advisory Leader +352 42 124 8800 [email protected]
Robert White Senior Manager, Assurance Services +352 42 124 8882 [email protected]
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