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- Press releases

The ALFI European Alternative Investment Funds Conference took place on January 19-20 2016 and was attended by more than 600 delegates.

The conference was opened by Denise Voss with some encouraging figures: since the introduction of the Alternative Investment Fund Managers Directive (AIFMD), Luxembourg has counted 211 authorised AIFMs, 626 registered AIFMs and 950 special limited partnerships. “Clearly alternative investing is coming into the mainstream and is of growing importance to the Luxembourg investment fund centre,” said Denise Voss.

Denise Voss highlighted the proposed Reserved Alternative Investment Fund (RAIF) as the latest innovation in Luxembourg’s drive to enlarge its legal toolbox. “The RAIF is a response for sophisticated investors who are looking for a fund product that offers more flexibility than a corporate vehicle,” she noted.

She also emphasised that the ALFI FinTech Forum has now been officially launched: At a specific ‘FinTech Corner’, twelve innovative FinTech companies used lunchtime to present their offer to the participants during the two days of the conference.

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A socially useful industry

The UN climate change conference in Paris at the end of last year sent a clear signal to the financial sector in general and the investment community in particular. The commitment by 196 countries to reduce carbon dioxide emissions means demand for climate change finance will reach unprecedented levels, said Marc Bichler, Luxembourg’s Ambassador-at-Large for climate change.

Financial flows will come from a variety of sources from within the public and private sectors, with the International Energy Agency predicting $13.5tn in renewable energy investments by 2030. However, there is currently a lack of financial instruments to act as an interface between investors and investable climate-friendly projects, Mr Bichler said. ALFI has participated in a task force aimed at submitting proposals to the Luxembourg government to channel finance to climate change projects. 

Meanwhile, CMU, which aims to strengthen capital markets and provide more sources of funding to EU companies, is under scrutiny. Take up of European Venture Capital Funds (EuVECA) and European Social Entrepreneurship Funds (EuSEF) has been slow and Giovanni Garcea, a Policy Officer at the European Commission, reminded the audience that the rules around these vehicles were currently being reviewed.

The take up of ELTIFs is expected to be faster. The Luxembourg government is currently preparing a draft law to allow the ELTIF to benefit from double tax treaties, provided certain conditions are met. “We may see a specific ELTIF law tailored to the needs of the market before the summer,” said Freddy Brausch, Partner at Linklaters in Luxembourg. According to Agathi Pafili, Senior Regulatory Policy Advisor at the European Fund and Asset Management Association (EFAMA), “we need funds and accompanying tax incentives that meet the needs of all investors.”

Going beyond digital

“In the next two to five years we will see the largest institutional shift in the history of humanity,” That is the view of Leonard Brody, a venture capitalist and Emmy nominee, who has coined “the great rewrite”. The biggest driver of this great rewrite is that technology puts ordinary people, rather than institutions, in a position of power. Capital markets will change, industry incumbents will no longer be protected and customer service will be the most important element of most businesses, he predicted.

What does this mean for the investment industry? For a start, the $13tn that was invested in FinTech last year will double over the next two years. FinTech will change expectations about customer experience; clients will expect the same experience that they receive from pure technology companies such as Apple, Uber and Airbnb.

The wealth of Generations X and Y will exceed that of babyboomers by 2018 and the investment industry needs to be able to attract and keep that wealth. New entrants to the industry will be vying to manage this wealth. Up to 98% of heirs switch advisors, noted Likhit Wagle, of IBM Global Business Services. “Fiduciary advice and deposit taking will stay with incumbents because of regulation, but everything else is fair game,” said Mr Wagle.

Traditional players can respond to the threats by learning how to leverage their key competitive advantage: data. At the moment much of that data is unstructured.

For alternative firms, the FinTech revolution will enable them to disintermediate traditional sources of finance. Private equity and real estate will enjoy greater liquidity through auctions and crossing mechanisms, while hedge fund portals will become more sophisticated.However, it was widely noted that, as in the dotcom era of the late 1990s, some FinTech companies will thrive while some more will fail. “We need to take a step back and see what start-ups are useful and how can we develop them in Luxembourg,” said Nicolas Buck, CEO of Seqvoia.

Real estate – Luxembourg assets on the rise

ALFI’s annual Real Estate Investment Fund Survey in conjunction with EY Luxembourg revealed that real estate assets in Luxembourg had reached more than €39bn by the middle of 2015, up from €32bn a year before. The total number of REIFs increased by 10% from the last survey and, since 2006, the number of direct REIFs has grown by a compound annual rate of 16.45%.

Further growth in both funds and assets is likely over the coming years given that many non-EU real estate funds do not have a third-party passport under AIFMD.

Private equity – change in investor perception

There are now more than 950 special limited partnerships in Luxembourg, which are used to a large extent for private equity investments. Private equity exits last year totalled $220bn, the second highest total after 2014. “Next year will be a strong year for private equity for the simple reason that a lot of money went back to LPs over the last two years and needs to be reinvested,” said Alain Kinsch, Country Managing Partner and EMEIA Private Equity Fund Leader at EY Luxembourg. The increasingly regulated nature of private equity is changing investor perceptions and higher allocations from public bodies, including pension funds, can be expected. 

Hedge funds – demand for liquid funds

The hedge fund industry is in good health with more new fund launches in 2015 than in 2014, and with 50% of managers expecting to launch funds this year to meet the changing demands of investors and markets.

New hedge funds will increasingly be launched onshore as European institutional investors seek EU-regulated funds. Many of these may be parallel structures set up in jurisdictions like Luxembourg, rather than the relocation of existing funds.

Despite a year of relatively poor hedge fund performance, many investors are satisfied with their hedge fund investments, according to William Jones, founder of Luxembourg’s ManagementPlus Group. “Investors are looking to hedge funds to diversify their portfolios rather than relative outperformance,” said Mr Jones.

Some conference participants expressed concerns that the expansion of central bank balance sheets worldwide will lead to market turmoil. At least one investment manager felt that any future crisis might be caused by an over-issuance of cheap corporate debt. The advice to hedge funds was to truly hedge their portfolio.

Emergence of alternative financing

Of the $8tn of assets managed in global alternative funds, two-thirds are managed in hedge and real estate funds and 25% is in private equity. Private credit and infrastructure represent just 5% of the industry. By 2020, infrastructure and private credit are expected to become a much bigger proportion of the whole. A survey by the Alternative Investment Managers Association (AIMA) on private debt in 2015 found that a third of members participated in debt and credit strategies.

Debt and credit funds can open opportunities in niche markets such as lending to SMEs, said André Prüm, Professor of Banking and Financial Law at University of Luxembourg. These types of opportunities are being encouraged at EU level through the Capital Markets Union (CMU) initiative, and at national level via public and private initiatives. For investors, the attraction of these investments is yield, stability and diversification.

Debt funds for real estate investment are proliferating, said Pierre Weimerskirch, Managing Director, Luxembourg Investment Solutions. “Yields on loan products are close to those on core real estate,” Mr Weimerskirch added.

Regulators are starting to pay attention to the sector and the European Commission is to assess funds which originate loans. Nathalie Dogniez, Partner at PwC Luxembourg, pointed out that Luxembourg Specialised Investment Funds (SIFs) are permitted to originate loans.

AIFMD – next steps

AIFMD is now a fact of life for European alternative investment managers and many have embraced the opportunities.

Investors in real estate funds, for instance, are often reassured by a local presence and appreciate when their assets are managed by local structures and managers who have knowledge of local dealflow. In this sense, AIFMD offers an additional layer of comfort.

In private equity, fundraising is periodic, so not all managers have had a chance to test whether the AIFMD passport provides distribution advantages.

The possibility of obtaining the passport has moved closer for investment firms in some third-party countries. Richard Stobo, Team Leader for Investment Management, ESMA, announced that the assessments of the US, Hong Kong and Singapore would be completed by the end of June 2016. Meanwhile, assessments of six additional countries – Bermuda, Canada, Japan, Australia, Cayman Islands and Isle of Man – will also be undertaken by June. Those that pass the test will join Guernsey, Jersey and Switzerland as approved passport jurisdictions.

Mr Stobo also announced that the decision whether to curtail private placement regimes can only take place after the passport assessments.

What's new in financial technology?

In a series of quick-fire presentations, selected FinTech companies showcased promising innovations in financial technology and shared their vision and ideas with the audience. Access summaries of presentations by clicking on the company logos below.

 

Updated on 01/02/16
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- ALFI statements

On 26 January 2016, ALFI responded to the consultation on Regulatory Technical Standards (RTS) for Packaged Retail and Insurance-based Investment Products (PRIIPs) conducted by the European Supervisory Authorities.

Updated on 01/02/16
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- ALFI statements

On 29 January 2016, ALFI responded to the call for evidence “EU regulatory framework for financial services”, which was published by the EU Commission end of September 2015.

Updated on 01/02/16
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- Press releases

The Association of the Luxembourg Fund Industry (ALFI) released today the 2015 Real Estate Investment Funds (REIF) survey, produced by EY Luxembourg, showing the development of the Luxembourg-domiciled REIF and Funds of REIF market as at the end of June 2015.

For the first time a new category of investment vehicle – the “Manager-Regulated AIF”[1] has been included in addition to direct real estate funds (Direct REIFs), Real Estate SICARs and Funds of REIFs. 

Denise Voss, Chairman of ALFI, said: “We have now been doing the survey on Real Estate Investment Funds since 2006 and over that time the market has changed considerably. Luxembourg’s aim is to create effective solutions for asset managers enabling them to distribute their funds globally and we believe that this latest edition of the survey confirms Luxembourg’s success in achieving that aim.”

Kai Braun, Partner and Alternatives Advisory Leader at EY, said: “The survey results clearly underline the positioning of Luxembourg as domicile of choice for real estate investment funds established with the aim to invest internationally and distribute cross-border. Since the introduction of the AIFMD, the trend of setting up international fund vehicles in the Grand Duchy has even increased with non-EU managers using Luxembourg as a European distribution hub.”

The total number of REIFs in the survey has increased by 10% since the last ALFI REIF survey in 2014 and, since  2006, the number of direct REIFs (excluding Manager-Regulated AIFs), have shown a compound annual growth rate (CAGR) of 16.45%.

EY findings of the survey include:            

  • The number of new Luxembourg domiciled REIFs has increased:
    • 27 Direct Funds, including three Manager-Regulated AIFs were launched in 2014 compared to 18 Direct Funds, including two Manager-Regulated AIFs, in 2013 ;
    • Five funds of REIFs were launched in 2014 compared to only two during 2013 and one in 2012.
    • Early signs for Q1 and Q2 2015 are good with eight new SIFs, three Manager-Regulated AIFs and a single 2010 Part 2 Fund;
  • The most common target sector remains ‘multi-sector’ with 61% (compared to 57% in the 2014 survey). Among the sectors themselves, the category of “retail” was the strongest preference with 45% of respondents indicating this as their sector of choice, compared to only 27% last year;
  • Geographical investment strategies focus on a single country in 40% of the funds (stable from 2014 but up from 35% and 27% in the preceding two years), which supports the trend toward simplification.  70% of the surveyed Direct Funds invest only in Europe, whereas 8% of funds invest only in the Asia Pacific region and 3% invest only in the Americas;
  • Investors come mainly from Europe.  However a significant portion comes from the Americas, Asia and the Middle East, confirming the global appeal of the Luxembourg fund regimes;
  • Luxembourg domiciled Direct Funds and Funds of REIFs are mainly used for small groups of institutional investors, with 87% having less than 25 investors – an increase of 3 percentage points compared to the last ALFI REIF survey;
  • Only 2% of the surveyed REIFs reported having more than 100 investors;
  • The Direct Funds are widely distributed (but with focus on specific geographical areas), with only 26% limited to a single country, and 20% being sold in more than six countries. The largest proportion can be observed in the category of two to five countries, into which 54% of funds fall;
  • Though umbrella funds remain popular for practical and cost reasons, the trend over the last few years has been towards simplification of structures and strategies, a trend which was again in evidence in the 2015 survey;
  • Specialized Investment Funds (SIFs) account for all of the REIFs launched in the last 30 months (excluding Manager-Regulated AIFs) and the SIF regime is now firmly established as the favoured regime for regulated REIFs and Fund of REIFs in Luxembourg. SCS/SCSp partnership legal forms are an increasing trend since the updating of the Luxembourg Partnership laws in 2013;
  • In line with previous surveys, smaller funds continue to make up the majority of direct REIFs, with 61% falling in the category of below EUR100 million net asset value (NAV);
  • The number of funds with significant gearing has increased, with a greater proportion reporting a target gearing in the 50%-60% range and the over 70% range. This could indicate optimism in relation to the ability to borrow;
  • The proportion of funds reporting under IFRS has decreased slightly from the previous year to 40% in 2015 compared to 42% in 2014. Funds launched in the first half of 2015 mostly report under IFRS (75%), whereas funds launched in 2014 were mostly reporting under Lux GAAP (68%).

Download the press release in English and French.



[1] A “Manager-Regulated AIF” refers to an investment fund which is not established under a regulated fund regime in Luxembourg (e.g. SIF/SICAR), but instead is formed solely under corporate or partnership law. The managers of such a vehicle are typically themselves regulated or registered directly under the AIFMD.

 

Updated on 20/01/16
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- ALFI statements

On 6 January 2016, ALFI and the Luxembourg Private Equity and Venture Capital Association (LPEA) responded to the EU Commission consultation on the review of the EuVECA and EuSEF Regulations.

Updated on 08/01/16
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- Press releases

27 January 2016, 5pm CET 

Get the basics on the tool intended to protect shareholders from account trading and market impact costs.

PANELISTS:
Geoff Radcliffe
, Managing Director of BlackRock (Luxembourg) S.A. and ALFI Board Member
Elisa O'Keefe, Vice President, Fund Administration, State Street Global Services

Swing pricing which has been applied in Luxembourg for the past 15 to 20 years, has proven to be an efficient mechanism to protect existing shareholders from dilution associated with shareholder purchases and redemptions as well as an additional tool to help manage liquidity risks. In the United States, swing pricing is just now gaining traction, especially with new rules finalized and work underway to protect money market investors, the Securities and Exchange Commission has now shifted its focus to safeguards for shareholders of open-end mutual funds and certain exchange traded funds (ETFs). The SEC has proposed new rules and amendments to rules which seek to protect fund investors during periods of large investor withdrawals.

Join the Association of the Luxembourg Fund Industry and NICSA for this jointly produced and presented webinar. Hear perspectives from European and American experts on swing pricing.

Additional Resources:

Updated on 27/01/16
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- Press releases

The trend towards greater adoption of swing pricing continues. The third edition of ALFI’s Swing Pricing Survey shows both a greater number of participants responding to the survey and a greater number of asset managers that have implemented the mechanism.

Swing pricing, which has been applied in Luxembourg for the past 15 to 20 years, has proven to be an efficient mechanism to protect existing shareholders from dilution associated with shareholder purchases and redemptions as well as an additional tool to help funds manage liquidity risks. This technique is therefore perfectly in line with ALFI’s main objectives to protect investors and to foster dedication to professional standards, integrity and quality.

The 2015 version of the ALFI Swing Pricing Survey increases the scope and depth of the previous survey done in 2011 and provides more detailed insights into how swing pricing is currently applied by asset managers, common trends, emerging themes and the challenges the industry faces in this regard.

The survey was conducted by a dedicated ALFI working group throughout July to September 2015 and targeted the largest 65 Luxembourg asset managers. 45 companies participated to the survey. They represent approximately USD 2,500 bn of assets under management, which is 69% of the assets of the Luxembourg domiciled funds (July 2015 figures).

Exactly two out of three respondents, who manage a combined USD 1,900 bn of net assets (54% of total assets under management in Luxembourg funds) apply swing pricing. More than half of the asset managers not yet applying swing pricing stated they were in the process of evaluating it, and wanted to understand more about the key principles, drivers and theories. These managers might benefit from the updated Swing Pricing Guidelines ALFI has published alongside with the survey.

The 2015 ALFI Swing Pricing Survey is available in a PDF format on this link.

Updated on 18/12/15
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- Press releases

ALFI welcomes the publication of a draft law relating to a new Luxembourg alternative fund structure, the Reserved Alternative Investment Fund (RAIF).

The bill will run through the usual legislative process and is therefore still subject to change. A final text of the law might be adopted in the second quarter of 2016.

Denise Voss, Chairman of ALFI, explains: “The future Luxembourg RAIF Law will provide an additional – complementary – alternative investment fund regime which is similar to both the Specialised Investment Fund and SICAR regimes.”

Currently Luxembourg rules not only require the Luxembourg Alternative Investment Fund Manager (AIFM) to be authorised and regulated by the CSSF but also require the Alternative Investment Fund (AIF), usually a Part II UCI, a SIF or a SICAR, to be authorised and supervised by the CSSF. The CSSF approves and supervises the Luxembourg AIFM and the Luxembourg AIF separately.

The new RAIF is an AIF that has very similar features to the Luxembourg SIFs and SICARs with the key difference that the RAIF does not need to be approved and is not supervised by the CSSF.

Jacques Elvinger, partner at Elvinger, Hoss & Prussen and Chairman of ALFI’s Regulation Advisory Board, highlights the benefits of the new regime: “Managers will benefit from a reduced time-to-market because the RAIF itself does not have to be approved by the Luxembourg regulator. Going forward, managers will be able to choose whether to set up their Luxembourg AIF as Part II UCI, SIF or SICAR if they or their investors prefer for the AIF to be supervised by the CSSF, or to set up their AIF as a RAIF, which does not need to be approved and supervised by the CSSF, with consequent time-to-market benefits."

Claude Niedner, partner at the law firm Arendt & Medernach and Chairman of ALFI’s alternative investments committee, explains: “A regime of double authorisation and supervision is not required by the AIFMD. The AIFMD regulates the managers of AIFs, and “only” asks them to ensure that the AIF complies with certain product rules and to report on its AIFs on a regular basis. The RAIF legislation will enable Luxembourg and foreign AIFMs to benefit from a flexible and innovative investment fund vehicle.”

In order to ensure sufficient protection and regulation via its manager, a RAIF must be managed by an authorised external AIFM. The latter can be domiciled in Luxembourg or in any other Member State of the EU. If it is authorised and fully in line with the requirements of the AIFMD, the AIFM can make use of the marketing passport to market shares or units of RAIFs on a cross-border basis. As is the case for Luxembourg SIFs and SICARs, shares or units of RAIFs can only be sold to well-informed investors.

“The new structure will complement our attractive range of investment fund products in Luxembourg and we believe this demonstrates the understanding the Luxembourg lawmaker has of the needs of the fund industry to best serve the interests of investors.“ concludes Denise Voss.

The draft law can be consulted on this link.

Updated on 17/06/16
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- Press releases

ALFI’s Hong Kong office celebrates five successful years! The Association of the Luxembourg Fund Industry (ALFI or the Association) today celebrated the fifth anniversary of the opening of its Asia Representative Office in Hong Kong at the Association’s annual roadshow in the region. Asia has become the main non-European market for UCITS funds, totalling approximately 62% of total UCITS registrations outside of Europe. 

Luxembourg’s position as the international fund centre of reference continues to grow in Asia, with 215, 148 and 371 registrations respectively, attending ALFI’s financial seminars in Tokyo, Tapei and Hong Kong this week. The seminars addressed practical solutions offered by the Luxembourg fund industry for structuring Luxembourg based UCITS and alternative investment fund products, discussed how better governance benefits investors and examined the current distribution and product innovations under both UCITS and AIFMD.

“Through our ongoing activities in Asia, we have developed strong relationships with stakeholders from the various Asian fund jurisdictions and we continue to work with them on key issues that impact the industry,” said Mr Camille Thommes, Director General of ALFI.

“Since the opening of our office in Hong Kong five years ago, the Chinese economy and financial markets have undergone a remarkable transformation and seen significant growth. More specifically, the Chinese equity market has grown to the second largest equity market in the world after the US,” said Mr Thommes.

“ALFI has helped to make significant in-roads into the opening up of China’s capital markets. Luxembourg was the first country to authorise an RQFII UCITS in 2013 as well as the first country to authorise a UCITS to invest through the Shanghai – Hong Kong Stock Connect program,” added Mr Thommes. “Luxembourg is also Europe's leading financial centre in terms of RMB denominated investment funds.”

Launched in November 2014, the Shanghai – Hong Kong Stock Connect program represented one of the biggest developments for foreign investors wishing to access this market and enabled foreign investors to trade Shanghai-listed shares via the Hong Kong stock exchange, and mainland investors to invest in Hong Kong shares via the Shanghai stock exchange.

Over the past year, 69 Luxembourg UCITS funds as well as 12 alternative funds have received approval from the Luxembourg Supervisory Authority, the CSSF, to access Stock Connect.

The RQFII scheme was launched in Hong Kong in 2011 and has been expanded to other jurisdictions since 2013, allowing an increased volume of offshore RMB to be reinvested into China’s securities markets. In April this year, the People’s Bank of China granted a RMB 50 billion Qualified Foreign Institutional Investor (RQFII) quota to Luxembourg. ICBC (Europe) and Bank of China Luxembourg both recently received regulatory approval as the first Luxembourg-based RQFII holders.

Download the press release here.

Updated on 11/12/15
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- Press releases

The Association of the Luxembourg Fund Industry (ALFI) has published the third edition of its Swing Pricing Guidelines.

Swing pricing, which has been applied in Luxembourg for the past 15 to 20 years, has proven to be an efficient mechanism to protect existing shareholders from dilution associated with shareholder purchases and redemptions as well as an additional tool to help funds manage liquidity risks. This technique is therefore perfectly in line with ALFI’s main objectives to protect investors and to foster dedication to professional standards, integrity and quality.

ALFI’s new Swing Pricing Guidelines reaffirm key principles, reflect the evolution in working practice and provide clarification on a number of technical points in areas such as calculation of the swing factor, transparency and fund corporate actions.

The primary purpose of this paper is to provide insight and guidance concerning swing pricing, with consideration as to its advantages, operation and limitations relevant to both those considering adoption of a swing pricing programme and also to established practitioners.

It is not the purpose of the document to consider the pros and cons of swing pricing relative to other methods of dealing with dilution and it does not recommend swing pricing, or any other method, as an industry standard. Equally there is no intention to mandate the compulsory use of swing pricing. Should an asset manager decide to implement swing pricing, the document intends to provide practical guidance relating to the key elements to be considered and to recommend standards of best practice as endorsed by ALFI.

ALFI’s 2015 Swing Pricing Guidelines are available on this link.

Updated on 10/12/15
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