18 May 2012, Custody Risk, Risk magazine
Daniela Klasén-Martin is managing director of DCG and DCG Management Company. Starting her career in 1992 in Stockholm and then Paris, Klasén-Martin has been active within the Luxembourg funds industry since 1997. She joined DCG in 2010 to head the Luxembourg office after having spent four years with a leading provider of governance, independent directorship and management company services, and nine years with a leading global asset manager. Klasén-Martin is active on Association of the Luxembourg Fund Industry committees, and she has spoken at conferences and written articles on the topics of fund governance, risk management and the Alternative Investment Funds Managers Directive.
Georg Lasch is head of client development for BNP Paribas Securities Services, Luxembourg. He is in charge of sales, relationship management and client service teams for asset managers, alternative asset managers, asset owners and banks in Luxembourg.
Camille Thommes is director-general of the Association of the Luxembourg Fund Industry (Alfi). He is a member of several advisory committees to the Luxembourg Supervisory Authority, of the Haut comité de la Place Financière set up by the Ministry of Finance, and he represents Alfi on the Board of Directors of the European Fund and Asset Management Association, as well as other non-profit organisations.
Régis Veillet is head of sales and client relationship management at Société Générale Securities Services in Luxembourg. He deals with depositary bank, fund administration and transfer agent activities.
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Custody Risk: Has Ucits IV met your expectations so far?
Daniela Klasén-Martin, DCG: It is important that Luxembourg was an early player in Ucits IV, and it was important to defend the ground of Luxembourg and ensure competitive advantage. We run a management company service and think about the competition from different jurisdictions, particularly in regard to the passport. When global institutions are making a choice of whether to use a management company in France, in the UK or in Luxembourg, they may see the advantage of using the Luxembourg management company because Luxembourg funds represent a strong part of the fund world. Also, because it is important to keep the management company, the controls and the governance in the country that runs the fund. When the decision has been made to keep the management company in another country, we still see demand for value-added services in Luxembourg such as governance and risk management.
Georg Lasch, BNP Paribas Securities Services: Most of the fund sponsors have spent the last 24 months adapting to the regulation, adapting their prospectuses to regulation and putting in place the necessary minimum adaptation to Ucits IV – be it some of the risk management principles on the management company side or the implementation of the Key Investor Information Document (Kiid). Some of the innovative parts of Ucits IV – master feeder and the management company passport – are being underused. Although we have seen the first master feeders coming up with masters in Luxembourg and elsewhere, it is clearly a minority.
Custody Risk: Why are master feeders being underused?
Georg Lasch: As always with regulation, organisations wait until the very last minute to act, mainly because the regulation becomes clearer as we approach the compulsory implementation. There are also more support services offered as providers redefine their service offering. In the first part of Ucits IV implementation, organisations have focused on the essential, the compulsory, part. Now that this has been done, we expect to see fund sponsors using the toolbox of Ucits IV to improve their products and reach economies of scale across domestic and cross-border products through master-feeder solutions.
Custody Risk: Are some of the benefits of Ucits IV likely to make more of an impact later in 2012?
Georg Lasch: We have always expected master feeders to come after the initial wave because people are still reacting to the regulation. The strategic impact of Ucits IV in its offering to revamp fund ranges and revamp organisation across Europe is a far-reaching change in an organisation and, hence, takes a longer time. So we have always expected master feeders to be more fashionable in 2012–2013, and we are not seeing huge changes through Ucits IV at this stage.
Régis Veillet, Société Générale Securities Services: In 2011, we expected Luxembourg to come out a winner of Ucits IV because we saw the two blocks that Ucits IV were offering were to the advantage of Luxembourg. However, it has not taken off as fast as we expected. Why? First, Luxembourg was so early with Ucits IV that we didn’t realise others were just lagging behind, and their strategies were not totally mature. Another reason is the financial crisis. The second half of 2011 was very difficult for clients, so they probably had other priorities. However, we are starting to see a lot of interest for master feeders, as expected. Surprisingly, we are seeing interest for cross-border mergers. Initially, Société Générale thought cross-border mergers might take more time because of fiscal issues.
Whether it is master feeders or cross-border mergers, it is mainly – but not always – to the advantage of Luxembourg. Most of our clients are looking for masters in Luxembourg. When they are thinking about cross-border mergers, it is merging a third country fund into a Luxembourg fund – this is positive. For the management passport, we are not seeing much interest yet and much needs to be clarified around taxation.
Camille Thommes, Association of the Luxembourg Fund Industry (Alfi): What you said about Luxembourg being too quick to implement Ucits IV – I’m not sure that is the case. It has more to do with the fact that some other member states are lagging behind. For the time being, there are still 10 countries in the European Union that have not fully implemented the directive. This raises concerns for players that want to benefit from one or the other efficiency measure. The European Securities and Markets Authority (Esma) issued an opinion and provided some recommendations on how you would need to deal with those situations, such as if you notify your product in a country that hasn’t transposed the directive or what happens with cross-border mergers if one of the funds is located in a jurisdiction that hasn’t implemented the directive?
Notification is still in the early days. Furthermore, we still have some tax constraints to overcome. This cannot be solved as quickly as expected. With regard to the management company, there are tax considerations that needed to be addressed such as the situation of a management company in one jurisdiction managing a fund in another jurisdiction, and the potential tax implications resulting from that. How would the tax authorities of the management company act? Where does mind and management take place? So, if several jurisdictions made changes to their respective tax laws stating that, even if a fund management company in country A manages a fund in country B, the tax authorities would not consider that mind and management would take place at the level of the management company.