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Daniel Dax LuxFLAG

Daniel Dax LuxFLAG. LuxFLAG Supporting Sustainable Finance. European Microfinance Week Luxembourg, 16 November 2012. About LuxFLAG

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Daniel Dax LuxFLAG

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  1. Daniel Dax LuxFLAG

  2. LuxFLAGSupporting Sustainable Finance European Microfinance Week Luxembourg, 16 November 2012

  3. About LuxFLAG Launched in July 2006, LuxFLAG is an independent not for profit association which supports the financing of sustainable development by providing clarity for investors through awarding Labels to investment funds which meet specific published criteria. The Charter Members of LuxFLAG are :

  4. About LuxFLAG: LuxFLAG Associate Members

  5. LuxFLAG’s position in the Microfinance industry

  6. LuxFLAGMicrofinanceandEnvironmentLabel

  7. Advantages of the Label Advantages of the LuxFLAG Label  : • Reinforces clarity, transparency and credibility towards the Investors • Enhances visibility of the labelled fund in the international platforms. • Helps reaching international investment community

  8. Thankyou For further information please visit : www.luxflag.org

  9. Jörg-Peter HAYN Banque de Luxembourg

  10. Why does a private bank like Banque de Luxembourg offer microfinance investments to its clients? • Microfinance investments meet the needs of the traditional conservative private investor: • return • safety • diversity • They are a valid alternative to our traditional investment offering • Industrialized countries like Greece, Portugal or Spain have become high risk investments • Emerging countries like Bolivia, Azerbaijan, Indonesia or Peru have become investment-grade investments

  11. Why does a private bank like Banque de Luxembourg offer microfinance investments to its clients? BL-Bond Euro BL-Global Bond CG Bond Euro Plus

  12. Why does a private bank like Banque de Luxembourg offer microfinance investments to its clients? Public Debt AAA of the EuropeanMonetary Union Sovereign bonds E.M. local currencies SovereignEmergingMarkets Hard currencies MFI Quasi sovereign CorpEmergingmarkets

  13. Why does a private bank like Banque de Luxembourg offer microfinance investments to its clients? • Microfinance investments are productive, contribute to the local development, and help build and generate wealth!

  14. How do we choose our investment targets? • We don’t invest in the world’s poorest countries (-> we don’t want to replace the sovereigns!) • We try to avoid geopolitical (-> Nicaragua!) and environmental(-> failure of crops!) risks • As a reaction to the recent microfinance crisis: currently no investments in India

  15. Key features of Banque de Luxembourg’s microfinance investments • No entry/exit after an initial subscription period ! (-> avoids necessity of early redemptions!) • Fixed-term investment (generally for a 3-year period) • All future currency risks are generally hedged • Selected microfinance institutions are regularly audited by our partners (e.g. Symbiotics, Geneva)

  16. Microfinance investments – for which type of clients? Typical clients • …don’t need their money for a certain period • …don’t require guarantees (with regard to the initial investment or the promised return) • …are looking for a better return than that offered by a traditional best quality sovereign bond investment • …want to feel comfortable with the target investment (sustainable investments, etc.) • …put safety first (and transparency) • …require returns that are more attractive compared to other investments

  17. Challenges in the advisory process • Explaining • how the fund works in reality (loan contracts) • the risk for principal and yield • the cost side (higher costs than a traditional bond funds)

  18. What kind of additional reporting do our clients need? • Detailed periodical reporting • Regular contact with the fund manager • From time to time, insights from a representative from a microfinance institution • Banque de Luxembourg’s events at its head office in Luxembourg with representatives from Promujer (Bolivia), Sathapana (Cambodia) and Azercredit (Azerbaijan)

  19. Outlook for microfinance investments: • Good investment opportunities in Latin and South America will become more and more rare • Microfinance institutions are increasingly using local financing – at lower costs • As a result, net return (after deduction of fees) will decline

  20. Sebastien Juhen Blue Orchard

  21. Investing in microfinance: How a specialist asset manager can meet investor requirementsSébastien Juhen, CIIAHead of Portfolio ManagementBlueOrchard Finance S.A.

  22. Microfinance is recognized as a high-impact investment solution attracting « financial first » and « impact first » investors Source: Eurosif Study “High Net Worth Individuals and Sustainable Investment 2012”

  23. Source: Credit Suisse Microfinance Capacity Building Initiative in collaboration with the Microfinance Communications Council: Taking Stock of Microfinance: Perception Survey Among Wealth Holders and Their Advisers in the US, Europe and Asia (White Paper, 2011) Private wealth holders put social impact first

  24. Source: IPE European Institutional Asset Management Survey 2011 Institutional investors apply stringent criteria when selecting asset managers across asset classes

  25. BlueOrchard applies a state-of-the art investment process with clear responsibilities and strict governance

  26. The first pillar of the BlueOrchard investment and underwriting process: rigorous financial research and due diligence

  27. Risk management: clearly identified risk areas and mitigants

  28. The second pillar of the BlueOrchard investment process: social performance management and monitoring Source: Eurosif Study “High Net Worth Individuals and Sustainabley Investment 2012”

  29. Social performance management and reporting: required by investors, certified by independent agencies, rewarded by peers Source: SPIRIT 4.0 (Social Performance Impact Reporting & Intelligence Tool developed by BlueOrchard) applied to 110 MFIs in 2012

  30. Sebastian von Stauffenberg Microrate

  31. Luxembourg Microfinance Week Panel Discussion Sebastian von Stauffenberg MicroRate CEO

  32. MIV Universe

  33. MIV maturity timeline

  34. MIV Trends

  35. MIV Investors

  36. Opportunities and challenges for investors Opportunities Challenges • Positive returns • Debt: 2.5-4.5% average returns • Equity: Historical P.E. averages 11.4 for MFIs • Low volatility • Low correlation • Double bottom line − Limited available data − No objective analytical source − No standard reporting requirements − Lack of understanding of underlying microfinance assets Diversityof microfinance fund structures, models, pricing, as well as performance, risk, social, and management

  37. Question • What is the most important criteria to you when analyzing a specialized microfinance fund? • Financial Performance • Risk • Social Performance • Management and Governance

  38. Luminis analytical framework – PRSM™

  39. The Luminis Solutionsearch - compare - evaluate - monitor The first service to provide data and analysis on microfinance funds Search100+ fund profiles Compare side-by-side comparison Evaluate20+ PRSM profiles and 14+ reports Monitor regular data and analysis updates

  40. Axelle Ferey Ernst and Young, Luxembourg

  41. A changing regulatory environment for MIFs and their managers Update on AIFMD and EuSEF regime 16 November 2012

  42. AIFM is entity whose regular business in managing one or more AIF • Managing AIF means providing at least the investment management services of portfolio management or risk management • All EU AIFM managing AIF • All non-EU AIFM managing EU AIF and all non-EU AIFM marketing AIF in the European Union under a tailored authorisation process introducing the Member State of Reference • Any collective investment undertaking which raises capital from a number of investors, invests in accordance with a defined investment strategy, for the benefit of those investors and not UCITS authorised • Services provided by AIFM or delegated • Open or closed ended • Regardless of legal structure • Can be external manager or AIF itself • Member State may authorize external AIFM to provide additional services • Marketing: any direct or indirect offering or placement of units or shares in an AIF by or on behalf of the AIFM to or with investors domiciled in the Union • Authorised EU AIFM have a passport to market EU AIF to professional investors in their home Member State and in other Member States • Exemption criteria • Transitional provisions • Authorisation and marketing requirements • 3rd Country rules The AIFM Directive - The key questions Do we have AIF (s)? Who is the AIFM? Do I market within the EU? Do I plan to launch a new fund with EU investors? To what extent do I need to comply?

  43. The AIFM Directive - Key provisions at a glance

  44. AIFM Directive: Where do I sit on the compliance map?

  45. The alternative route to the passport: the EuSEF • Open to managers of collective investment undertakings (Voluntary regime) • established in the EU; • subject to registration in their home Member State; and • managing EuSEFs with assets under management not exceeding €500 million • A qualifying ‘EuSEF’ is a fund that invests at least 70% of its aggregated capital contribution in qualifying investments (equity, securitized and unsecuritized debt instruments) issued by a ‘qualifying portfolio undertaking’, that is, an undertaking which meets the following criteria: • It is not listed on a regulated market (note that AIM is not a regulated market; a company listed on AIM could therefore fall within the definition of ‘qualifying portfolio undertaking’ provided it meets the other criteria listed below); • Has a primary objective of achieving measurable, positive social impact; • Uses its profits mainly to achieve this primary objective (vs distributing them); and • Is managed into an accountable and transparent way • When may a fund be designated as a ‘European Social Entrepreneurship Fund’? • Managers of qualifying venture capital funds may use the designation ‘European Social Entrepreneurship Fund’ when marketing such funds in the EU if they comply with certain conditions including, among others, the following: • Portfolio composition, eligible investment targets and eligible investment tools– No more than 30% of the fund’s aggregate capital contributions shall be used to acquire investments in non-qualifying portfolio undertakings; • Eligible investors– Units or shares of the qualifying social entrepreneurshipfund may only be marketed to:* professional clients, and* other investors such as high-net worth individuals provided they meet certain criteria such as, for instance, a commitment to invest at least €100,000.

  46. Contacts Axelle Ferey Director, EMEA AIFMD Subject matter expert Ernst & Young Luxembourg Phone: +352 42 124 8329 axelle.ferey@lu.ey.com

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