Tom Brown, KPMG’s London-based Global Head of Investment Management (IM) opened the conference by highlighting the key role played by the KPMG Luxembourg practice in the IM network he oversees, bringing together some 3,000 professionals.
The inner workings of the Brussels decision making process
A first panel, composed of Charles Muller (KPMG), Isabelle Goubin (Ministry of Finance), Antoine Kremer (ALFI), and Burkhard Ober (Allianz Global Investors) provided insight into how the directive process usually works in Brussels and how it was that three different texts could be produced for the same AIFM draft directive. The draft directive text is first subject to considerable expert, technical input, but as it continues through the process, the discussion around the text becomes less technical and more political. This also means that the role of the Rapporteur can be fundamental in shaping a final directive.
Scenarios: how the AIFM Directive might look like in practice
Pascale Leroy (KPMG) then presented potential scenarios under which Part II funds and Specialised Investment Funds (SIFs) may operate under the new law which will transpose AIFMD in Luxembourg. It included the so called “Super- ManCo” status, which is understood as a management company authorized to manage both UCITS and alternative funds. The main advantage of such a Super ManCo resides in the cost synergies which can be derived by not duplicating the resources and technical infrastructure which are often common to managing both types of funds.
Luxembourg management companies to in-source more business functions
From a UCITS perspective, Vincent Koller (KPMG) and Sonia Dribek (KPMG) presented the results of their recent survey on the operating models and IT infrastructure of UCITS management companies. There was some food for thought within the results, such as an expectation from respondents that Luxembourg management companies will in-source more of the business functions currently outsourced, for example to their groups.
An opportunity to attract alternative funds to Luxembourg
A second panel, composed of Nathalie Dogniez (KPMG), Stéphane Brunet (BNP Paribas Investment Partners), David Green (Fidelity Worldwide Investments), Enrico Turchi (Pioneer Investments) and Denise Voss (Franklin Templeton), then discussed the strategic options available to those operating in the industry. Additional regulation defining substance requirements for management companies and self-managed SICAVs was considered as positive, as it further strengthens investor protection and therefore facilitates the registration of such funds for sale in new and existing distribution countries.
While the self-managed SICAV model was not considered dead, entities organized under such a model need to reflect on whether they will continue to meet their future business needs while complying with the new regulations. The delegation model in AIFMD is also a source of concern among the fund industry in general as it could be subject to further change in two years, and also due to its potential spillover effects on UCITS rules.
How AIFMD will shape the future
Georges Bock, Managing Partner at KPMG Luxembourg, closed the conference by sharing a few predictions on how AIFMD will shape the future. “I believe that we shall see alternative funds taking a comparable path to that taken by traditional funds since the first UCITS Directive came into effect. Environmental factors such as the single EU market, global distribution, local regulator and investor expectations, and peer competitiveness will all create demand for regulated alternative fund products, in much the same way as it did for traditional funds quite a few years back. As an example, QDII rules in China already make investment into foreign regulated products possible for Chinese investment managers who, prior to AIFMD, would not have had access to alternative products.
Another example in the private banking industry is that high net worth clients are demanding higher-return products but with the right investor protection package around these. AIFMD is therefore a fantastic opportunity for Luxembourg to grow its alternative funds sector, on the back of its competencies, resource pool, technical infrastructure and leadership already achieved in the UCITS sector.”