AIFMD : The Final Countdown

1. AIFMD : The Final Countdown Gus Black Angelyn Lim Marc Seimetz Hong Kong 26 November 2012

2. The Directive became EU law on 21 July 2011. Must be implemented by 22 July 2013. Timetable – Level 1

3. ESMA issued technical advice to the Commission on 16 November 2011. Timetable – Level 2: ESMA Advice

4. Have ‘direct effect’ Contain wide ranging implementing measures Timetable – Level 2: Regulations

5. Directive must be implemented by July 2013 “Regional variations”... Timetable – National Implementation

6. Timetable – Marketing Directive in force (P) 2011 2012 2013 2014 2015 2016 2017 2018 EU AIF obtain passport Non-EU AIF obtain passport? No more private placements? IF ESMA make positive recommendation, and requisite implementing legislation is passed

7. Key Impact Areas –Questions to Consider

8. Scope and Authorisation • Do you manage AIFs? • Can you rely on any exemptions? • de minimis? • delegate only? • Authorisation timing

9. Risk and Liquidity Management • Who will monitor? • How will functional separation be ensured? • Are systems compliant?

10. Valuation • Internal or external? • External: who will do it and at what cost? • Internal: • Liability • “Functional separation”

11. Other Operational / Compliance • New requirements: • conflicts • due diligence • inducements • execution, etc

12. Delegation • What is current delegation structure? • Is it compliant? • e.g. “third country” issues • Letter box entities

13. Marketing • Will private placement still work for me after 2013? • Value in the passport on day one? • Re-domicile funds onshore?

14. Marketing • Member States may allow Non-EU AIFM marketing from 2013-2015 if: • The non-EU AIFM complies with the AIFMD’s annual report, disclosure and reporting requirements and with requirements on control of non-listed companies • Its home state meets the cooperation requirements • States may impose stricter rules...

15. Marketing summary EU Funds with EU AIFMs Non-EU Funds or EU Funds with Non-EU AIFMs Implementation date. Passports made available to EU AIFMs for EU Funds. Private placement only Dual marketing system – EU passport or private placement Extension of passports to non-EU AIFMs and non-EU AIFs. Dual marketing system – EU passport or private placement ESMA to review the passport regime. Possible end of national private placement regime. Passport only ? Passport only ?

16. Depositary • Who? • New prime broker model? • Impact on pricing? • Re-domicile onshore funds offshore?

17. Remuneration - scope • A lot of staff are potentially affected: • Portfolio management • Senior management • Control functions • Others

18. Remuneration – possible impacts • Restrictions on bonuses: • Fixed vs variable restricted • Deferral over 3-5 yrs • Clawback and reduction • Must include fund shares?

19. Remuneration – possible impacts (2) • Other impacts: • Comp set by remuneration committee? • Disclosure to investors

20. Other Specific Issues • Highly leveraged funds • guidance awaited, 3x NAV? • Asset stripping rules • Securitisation provisions

21. Transparency • New disclosure requirements: • Impact on fund documents and IR? • Who will deliver compliance?

22. Impact on Asian Managers

23. Impact on Asian Managers • Marketing funds to EU investors • Acting as Sub-Investment Manager to an EU AIFM • Acting as Investment Manager of an EU AIF

24. Private Placement Timeline EU Funds with EU AIFMs Non-EU Funds or EU Funds with Non-EU AIFMs Implementation date. Passports made available to EU AIFMs for EU Funds. Private placement only Dual marketing system – EU passport or private placement Extension of passports to non-EU AIFMs and non-EU AIFs. Dual marketing system – EU passport or private placement ESMA to review the passport regime. Possible end of national private placement regime. Passport only ? Passport only ?

25. Private Placement by Asian Managers July 2013 – 2015 • National private placement rules dependant on individual EU Member States (Note: Germany). • Possible if: • Manager complies with transparency disclosure requirements of AIFMD for each fund • Manager complies with obligations when acquiring control of EU-registered non-listed companies • Co-operation agreements entered into between regulators of Manager, Fund and EU Member State where marketing will take place • Neither country of domicile of Fund and Manager is listed as a non-cooperative country by the FATF

26. Private Placement by Asian Managers (2) 2015 – 2018 • Possible if above requirements are satisfied. • If EU authorities agree, Manager may be able to benefit from EU passport: • Become authorised as a non-EU AIFM by an EU Member State of Reference • Comply with all AIFMD obligations applicable to an EU AIFM • Co-operation agreements among relevant regulators • Agreement between Manager’s home country and EU Member State of Reference for exchange of tax-related information • Manager’s home country is not listed as a non-cooperative country by FATF

27. Private Placement by Asian Managers (3) 2018 Onwards • EU authorities may abolish private placement rules • Authorisation by an EU Member State of Reference the only possibility?

28. Transparency Requirements • Annual report • Disclosure of remuneration paid by the Manager • Split between fixed and variable pay • Remuneration for senior management and other risk takers • Remuneration policies and practices for individuals and those with material impact on the risk profile of the fund • Disclosures to investors • Financial data (i.e. NAV, past performance) • Valuation procedures and pricing methodologies • Risk profile of the Fund, risk system operated by the Manager, liquidity risk management and any special arrangements arising from illiquid nature (i.e. side pockets)

29. Transparency Requirements (2) • Disclosure to investors (cont.) • Preferential treatment (i.e. side letter) • Leverage : total amount, changes to maximum level • Reporting obligations to EU regulators • Report to each Member State in which the Fund is marketed: • Main instruments of trade • Principal exposures • Most important concentrations • Monitoring of systemic risk: each Member State in which the Fund is marketed may require more information on a periodic and ad hoc basis

30. Transparency Requirements (3) • Obligations when acquiring control of EU non-listed companies • Disclosure to the Member State regulator: • On acquisition – notify the percentage of voting rights held by the Fund • Post-acquisition - notify the percentage voting rights held at various thresholds: 10%, 20%, 30%, 50% and 75% • (and to investors) Information on the Fund’s financing of the transaction • Fund must disclose to the target company and its shareholders: • its intention for the future business of the target company • the likely effect the acquisition will have on employment

31. Delegation under the AIFMD • Usually by an EU AIFM to an Asian Manager. Possible if:- • Delegation notified to the AIFM’s regulator • Asian Manager is registered/licensed to carry on asset management and is subject to supervision

32. Delegation under the AIFMD (2) • Asian Manager has sufficient resources and individual PMs are of good repute with sufficient experience • Asian Manager is qualified, DD has been exercised in its selection; AIFM is able to monitor and withdraw delegation • Supervision is retained by AIFM which remains responsible to Fund (AIF) and the investors • Co-operation agreement between relevant regulators (same degree of data protection?) • Letter-box issues: “the totality of individually delegated tasks [cannot] substantially exceed the tasks remaining with AIFM”

33. Implementing the AIFMD in Luxembourg

34. Draft Bill of 24 August 2012 • The Draft Bill implementing the AIFMD and amending certain Luxembourg laws (the “Bill”) has been filed on 24 August 2012 with the Luxembourg Parliament • The Bill will: • implement AIFMD • change and update other provisions of Luxembourg law, including • Add a new category of Professional of the Financial Sector (PSF) (i.e. depositary for AIF) • Introduce a Special Limited Partnership (société en commandite spéciale or S.L.S.) (similar to the English limited partnership) • Update the current regimes for Limited Partnership (société en commandite simple or S.C.S.) and Partnership limited by shares (société en commandite par actions or S.C.A.)

35. Introduction of a New Law; Amendment of Existing Laws • The implementation of the AIFMD will among others be done through • a new Luxembourg law relating to the AIFM • Amendment to the existinglawsrelating to the different types of Luxembourg investmentfundssuch as • The law of 17 December 2010 on Undertakings for Collective Investment (“UCIs”) • The law of 13 February 2007 on SpecialisedInvestmentFunds ( “SIFs” ) • The law of 15 June 2004 relating to InvestmentCompanies in Risk Capital (“SICARs”) 35

36. New Depositary Regime • The Bill will amend the law of 5 April 1993 on the financial sector, as amended, and specifically introduce, in addition to banks, a new category of Professional of the Financial Sector entitled to act as depositary for alternative investment funds 36

37. Changes to the Luxembourg Company Law • The Bill will amend the law of 10 August 1915 on commercial companies, as amended • Introduction of the Special Limited Partnership (SLP) regime (société en commanditespéciale) • SIFs, SICARs and unregulated commercial enterprises will have the possibility to be incorporated under the form of a SLP which would be established through a limited partnership agreement (similar to an English limited partnership) • a SLP would not have a legal personality and should be treated as “transparent” for tax purposes • Amendment/Modernizing of the existing Limited Partnership regimes (société en commandite simple/société en commandite par actions) by introducing further clarity, among others, on liabilities of the partners, improving thus the attractivity of these structures 37

38. Entry into Force and Transitory Provisions as providedcurrently in the Bill • The Bill is currently in the middle of the Luxembourg legislative approval process and it is expected that the Bill will be adopted at the end of 2012/beginning of 2013 (well before the deadline imposed by AIFMD which is 22 July 2013) • Should the Bill be adopted with its current wording, then • SIFs, SICARs and UCIs established before 22 July 2013 will benefit from a grandfathering period to comply with the provisions of the new legislation until 22 July 2014 • SIFs, SICARs and UCIs established after 22 July 2013 will automatically be subject to the provisions of the new legislation

39. QUESTIONS?

40. Key Dechert Contacts Angelyn Lim Partner Angelyn.Lim@dechert.com Marc Seimetz Partner Marc.Seimetz@dechert.com Gus Black Partner Gus.Black@dechert.com

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