CACEIS NEWS 38 EN

THE ASSET SERVICING JOURNAL

JUNE 2014 N O. 38

www.caceis.com

Editorial

FRANÇOIS MARION, CEO, CACEIS CACEIS provides high quality support for our client’s day-to- day business needs. However, we believe we also have a responsibility to leverage our market knowledge and resources to help clients understand and prepare for the future environment in which they will do business. We are therefore continuing our series of industry research papers, working with PwC Luxembourg, and publishing new research on where the asset management industry is headed. Our research is based on extrapolation of demonstrable trends identified in the industry as well as clear shifts in related sectors, such as banking and insurance, which will have a noticeable impact on the asset management industry. In addition, regulatory issues, macro-economic trends and evolving social demographic factors are also taken into consideration so as to obtain a detailed picture of the forces shaping the industry. Our joint research paper, entitled “Asset Management moves into the spotlight” takes a three-part look at development prospects for the asset management industry in relation to filling the financing gap in the global economy, taking on a greater role in the pensions industry, and leveraging the benefits of doing business in the digital era. At each stage, the report provides practical recommendations for taking advantage of the opportunities identified. The report will be distributed, and presented in plenary, at this year’s Fund Forum International in Monaco. The positive conclusions the report draws provide a strong indication that the asset management industry has growing role to play in the financial sector, and as CACEIS’s business is so closely linked to the fortunes of our asset management clients, it is an encouraging sign for the asset servicing industry as well  

The opportunities open up for the Asset Management industry

Page 2

Uncovering the factors set to increase Asset Management’s weight in the

financial sector.

Page 3

Interview with Steven Libby, PwC Luxembourg, Asset

this report provides will help asset management clients define a strate- gy that is both effective and realistic in its ambitions. As asset management begins the process of disintermediating banks, its primary role in the industry is to raise and deploy capital where it is required. On the one side, it provides investors with vehicles for CACEIS’s new publication “Asset Management moves into the spotlight” , produced in conjunction with PwC Luxembourg, looks at the factors that will drive the sector’s growth and see it take a more prominent position in the financial world

Management Leader.

Page 4

T he decision to focus our re- search paper on asset man- agement’s future develop- ment prospects was driven as much by the need to better understand the opportunities opening up for asset management firms, as by the need to be aware of the pitfalls and issues that may hamper future develop- ment of the industry. We believe that the insight and recommendations

CACEIS supports its clients’ development in the growing Belgian market.

investment and diversification. On the other side, it helps the economy (SMEs and large-scale infrastruc- ture projects, for example) to secure funding. Opportunities for capital raising and investment abound and the time is right for asset manage- ment to move centre stage and in- crease its role in supporting the global economy. continued on page 2

Page 5

Amundi is increasing its international presence.

23-26 June 2014

Turnkey AIFM regulatory reporting compliance services.

CSR award for CACEIS.

THEWORLD’S LEADING ASSET MANAGEMENT EVENT

Page 5

New regulations have a major impact on distribution strategies.

CACEIS is lead sponsor of the event and four delegates will be hosting seminars or chairing discussions at the conference (cf. page 7). We look forward to meetingmany of our clients and contacts at our exhibition stand at Fund Forum. Our senior management and business development representatives from our various offices will be on hand to discuss any topics you wish to raise.

The Grimaldi Forum CACEIS Stand 31-33

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Page 7

2 caceis news - No. 38 - June 2014

Uncovering the factors set to increase Asset Management’s weight in the financial sector The asset management industry has the opportunity to emerge from the shadow of the banking and insurance sectors and play a more central role in the future of the financial services industry.

New regulations provoke bank deleveraging Annual percentage change in assets and loans of Euro area

Pension funds are set to increase massively over the next 10 years as long-term capital is allocated to pension portfolios. Indeed, pension fund AuM are estimated to reach some $56tr globally within the next five years, with most growth com- ing from Latin American markets, but the largest pools of assets still in North American ($30tr) and Europe ($14tr). Another area in the scope of Long Term Investors is Sovereign Wealth Funds (SWFs), which have seen considerable growth since 2000, with 53 new funds formed and a total segmentAuM of almost $9tr globally. 45% of these assets are entrusted to external parties, traditionally western investment banks, but there remains enormous potential for the asset man- agement sector to claim a share of the business, and our report lays out its recommendations for asset managers looking to win business from long- term institutional players like SWFs and pension funds. ENTERING THE DIGITAL ERA The final section of the report looks at technology and the undeniable effects it has on asset managers’ business in terms of data processing and client interactions. Big Data, an industry buzzword for some time now, is already a major influence on asset management’s fu- ture path. The amount of data not only imported by the asset manage- ment industry, (market and exchange rate data etc.) but also generated by the industry (NAVs, client holdings etc.) can be overwhelming. However, if companies can harness this data, it can be used to improve their invest- ment strategy and better target client sales, and will be essential to a com- pany’s economic survival. Other technology companies, such as Google, have already mastered Big Data analytics, and as per our report’s example in China, tech gi- ants are keen to disrupt the market with new solutions for their user base. With an increasing number of “connected” individuals and devices, the younger generation’s reticence to engage with “old finance” but facil- ity with social media, Asset manag- ers also have a new, direct commu- nication channel through which they can engage with their investors. Our recommendations for the asset man- agement industry as regards Big Data and Social Media are clearly estab- lished in the report. The challenges asset management faces in the coming years are undeni- able - from the regulatory through to the technological - yet the opportuni- ties for the industry to grow in impor- tance and size are substantial. Our re- port clearly analyses these challenges and opportunities, and provides a set of practical recommendations for the asset management industry to move into the spotlight "

YoY change YoY change

Loan an

Asset et

15.0% 16.0

10.0% 10.0

5.0% 5.0

0.0% 0.0

-5.0% -5

-10.0% -10.0

2011 20

2007 07

2008 2009 2010 0 8 2 9 0

2012 2013 2 2 2 3

Source: PWC analysis based on ECB database

ARIANNA ARZENI, Head of Group Business Development Support, CACEIS

T he financial landscape looks different than it did ten years ago, when banks ruled the market and a few that were “too big to fail” tipped the global economy into a long period of recession. Since the crisis, regulators have brought in a wave of regulation to protect the economy and the end investor; inter- net has continued to deepen its inte- gration with our lives, with people increasingly using it to source their fi- nancial information and look for new non-banking investment vehicles; and finally, the progression of the de- veloped world’s demographic trends sees an ever-larger, wealthier, aging population. These major regulatory, technological and demographic forc- es will play a central role in defining and reshaping the global asset man- agement industry’s future, providing significant opportunities for growth. demographic forces will play a central role in defining and reshaping the global asset management industry’s future, providing significant opportunities for growth. FINANCING THE ECONOMY The first area analysed by our report is amacro-economic issue – financing through loans to Small and Medium Enterprises (SMEs). Since the crisis, which itself triggered a massive but temporary shortfall in the loan capi- tal available to SMEs, the regulatory backlash that was designed to protect investors and reduce systemic risk from banks, the traditional lending source for SMEs, has obliged banks to maintain higher capital ratios and “de-risk” their balance sheets. This These major regulatory, technological and

2010 Old-age dependency ratios for different world regions 2010 to 2050 as % *Population aged 65 and older to population aged 15 to 64 2010 2050 2050

in turn has led to a reduction in cor- porate lending. With well-meaning bank regulation creating a funding gap for a part of the economy which is key to restoring growth and reduc- ing unemployment, there is clearly a need for alternative capital sources. Here, the first new asset management opportunities is identified – funding SME loans. Another important area of opportu- nity for asset management outlined in the report is infrastructure invest- ment. Traditionally, it is the domain of national governments, however, with national economies of many nations either still in recession or barely posting positive growth fig- ures, governments have had to ei- ther implement full-blown austerity measures or at least tighten their belts significantly. Belt tightening often impacts infrastructure development due to the high cost of public infra- structure projects and its lower per- ceived importance when compared to other budget areas. Public Private Partnerships (PPPs), in which private capital is added to public funds, are identified in the report as a large and potentially profitable investment op- portunity for the asset management industry. Recommendations for get- ting involved with both SME loans and PPPs are included in the report. The demographic trends that give de- veloped countries top heavy popula- tions are putting unsustainable strain on state pension plans. Self-funded pensions and indeed Self Invested Personal Pensions (SIPPs) look to be an unavoidable path for those seri- ous about planning their retirement. $2 trillion is needed each year to fund infrastructure worldwide MOBILISING LONG-TERM INVESTORS

60

50 50

40

30 30

20

10

0

Western Europe West rn Europe

Europe Northern America Eur e N rt ern America

Eastern Europe East rn Europe

Oceania Latin America + the Caribbean Oce ia Latin erica + the Caribbean

Asia sia

Africa frica

*Populationaged65andolder topopulationaged15 to64

Sources:UNPopulationDivision (2012),AllianzAssetManagement Sources: UN Population Division (2012), Allianz Asset Management

The US and Europe will still have the largest pension fund assets in 2020 Pension fund assets in usd trillion = CAGR 70

50 60 40 20 10 30

56.5

1.1

5.0

6.6%

6.5 13.8

8.8% 9.9% 9.5% 6.2% 5.7%

2.9%

33.9

0.6

8.5 3.2 2.4

29.4

11.3%

0.4 1.5

7.1 2.1

21.3

0.8 0.2

4.7 1.3

30.1

19.3

18.3

14.3

0

2004 2

2007 07

2012 2 2

2020 0

North America orth America Latin America Latin America

Europe Europe

Asia-Pacific

Middle East and Africa Middle East and Africa

Sources:PwC,MarketResearchCentre,AssetManagement2020–ABraveNewWorld. Sources: PwC, Market Research Centre, "Asset Management 2020", 2014

60% The impact on the Digital Era Asset Managers' use of social media

50% 60

2010

2014 study

40%

30%

20% 20

10%

0% 0%

The leading asset management social media to their advantage rms are using The leading asset management firms are using social media to their advantage

Asset management rms are not yet Asset management firms are not yet seeing the value of social media seeing the value of social media

Asset management to explore social media rms are smart Asset management firms are smart to explore social media

Social media is a wise use of asset management Social media is a wise use of asset management firm's time and resources resources rms' time and

Sources: American Century Investments - Fifth Annual Financial Professionals Social Media Adoption Study, 2014 Sources:AmericanCentury Investments -FifthAnnualFinancialProfessionalsSocialMediaAdoptionStudy,2014

No. 38 - June 2014 - caceis news 3

Interview with Steven Libby, PwC Luxembourg, Asset Management Leader

NEW BUSINESS

The Edmond de Rothschild Group and CACEIS sign a fund accounting, bookkeeping, custody and transfer agent services agreement in Luxembourg

Therefore asset managers must un- derstand their investors’ needs and adhere to their risk principles. As already mentioned in one of our previous reports 1 , asset managers must strive to deliver consistent risk-based performance and charge appropriate fees while demonstrat- ing the utmost transparency and governance as well as a commit- ment to meet the needs of institu- tional investors through operation- al strength. At the same time, they need to be able to navigate the new regulations effectively in order to deliver appropriate investment schemes and communicate effec- tively with their clients. The report warns that if asset managers fail to take advantage of the digital era, a new breed of entrants could disrupt the market. Where do you think these new en- trants might originate? In many respects, digital investing is a new frontier for asset management providing new opportunities for as- set managers to engage not only in direct communication with investors, but also to team up with technology players to increase sales and disrupt the market. In China, several nota- ble asset managers and new entrants within the financial services industry

to the fund is delivered via its online platform AliPay. Yu’e Bao, which launched just ten months ago, has attracted more than 81 million in- vestors. By comparison, China’s A-share market boasts about 67 mil- lion investors after 23 years of devel- opment. In an incredibly short time, Yu’e Bao has become the third larg- est money market fund in the world. Last year (October 2013), Baidu and China Asset Management Company also teamed up to launch an online wealth management platform of- fering two money market funds: “Baifa” and “Baizhuan”. In January 2014, Tencent cooperated with four asset managers (ChinaAMC, EFund, China Universal and GF Fund) to launch a similar product called “Licaitong” on its popular instant messaging smartphone ap- plication, WeChat. In the past, communication towards investors has predominantly been seen as the responsibility of distrib- utors, especially in the retail space, but the rise of social networks has created a channel that allows inves- tors to interact directly with asset managers and obtain information with little effort. Additionally, on- line investment communities fa- cilitate investor connections which foster the exchange of information, giving rise to the digital investor who is both well informed and criti- cal of the asset management and fi- nancial advice industries. Those that do not integrate digital technology into their business mod- els could face real competition from a new breed of entrants emerging from technology firms that under- stand the value and efficient utilisa- tion of new technologies to create a unique client experience within the industry. However, this is mitigated by the fact that technology firms will have to overcome the regula- tory and cost barriers of entering the financial services industry

their managers pro- tects investors, but also limits systemic risks and risk trans- mission. Each fund is legally separate from its manager and the manager’s other funds, so investment risks in one fund do not spill over to others. Fund assets are held sepa- rately by an eligible custodian and, there- fore, cannot be used to cover losses incurred by the manager. It is important to remem- ber that, although as- set management is taking over some busi- ness from banks, it re- mains a separate entity with its own unique framework and busi- ness model. Therefore,

After entering into exclusive negotiations at the end of 2013, the Edmond de Rothschild group and CACEIS can now confirm that a partnership has been agreed. * The deal will allow the Luxembourg arm of the Edmond de Rothschild group to continue developing a high value-added service, following the Edmond de Rothschild model and supported by a progressive, state-of-the art operational platform. CACEIS will provide bookkeeping, custody, transfer agent and accounting services, while Edmond de Rothschild (Europe) will remain depositary and

The report identifies significant opportunities for asset manage- ment in funding national econo- mies. Is there a risk that the largest players might be classi- fied as a systemically important financial institution (SIFI) and therefore be subject to higher capital requirements and capital surcharges? Yes, the growing importance of the asset management industry does increase the risk of it being regulat- ed as banks. Often, policy makers mistakenly put asset management and banks in the same category, and apply identical regulations to both. But the two are entirely dif- ferent. Categorizing them together would unnecessarily impose siz- able constraints on investment flexibility for asset management and potentially increase the costs for end-investors. In its current state, the asset management indus- try is already highly regulated and does not pose a systemic risk to the economy. Therefore, regulations that apply to banks may not nec- essarily apply to the asset manage- ment industry. For instance, asset management, with the exception of hedge funds, does not use leverage. Therefore, mutual funds and UCITS don’t fail the same way banks do. Unlike banks, asset managers are not compromised if their investors lose money. In an agency func- tion, asset managers do not bear credit, market and liquidity risk on their own. Blackrock, the world’s largest asset manager, currently has over $4 trillion of assets un- der management, but has only $9 billion of assets of its own. Fluctuations in asset values do not threaten the insolvency of an as- set manager as they would a bank. Furthermore, investors fully expect to absorb losses along with gains.

bank regulations designed to pro- tect clients will not necessarily be appropriate for asset managers. As a key client segment going forward, what special considera- tions must asset managers ad- dress in order to meet the needs of institutional investors?

central administrator, meeting its commitments to its customers.

The deal involves assets of more than €20 billion. More than 110 Edmond de Rothschild employees will join CACEIS teams on 1st October 2014.

CACEIS/PwC Assurance Model

More than €20bn in assets 110 employees will join CACEIS More than

According to Marc Ambroisien , CEO of Edmond de Rothschild (Europe): “By choosing CACEIS, a global leader in this business and a long-standing partner of our Group, we have laid the foundations of our future development. Our teams have worked together in recent months, allowing us to maintain the highest levels of service and offer bespoke solutions that set us apart from the market.” Pierre Cimino , Managing Director of CACEIS Bank Luxembourg, added: “This is an innovative alliance which will draw on our complementarity and respective skills, and see us consolidate our relationship with the Edmond de Rothschild group, an internationally- renowned partner. CACEIS hopes to support the Edmond de Rothschild group in its development strategy through its constantly changing service offering. The staff joining us will help ensure the quality and continuity of services for our partner and its customers.” * Subject to the approval of the Commission de Surveillance du Secteur Financier

Source: CACEIS/PwC, Taking the Reins, 2012

1 CACEIS/PwC, Taking the Reins, 2012

As asset managers begin to fill the gaps left by banks, they will be- gin to serve a variety of growing sources of money, specifically in the area of long-term investments. Institutional investors, such as pension funds, (life) insurers and sovereign wealth funds (SWFs) represent an important source of long-term finance, so asset man- agers will have to increase their expertise to provide solutions for these investors. Furthermore, institutional inves- tors have become more risk-sensi- tive and require the utmost trans- parency. At the same time, they expect positive returns delivered by investment vehicles that are ap- propriately suited to their goals. As institutional investors have be- come more proactive and scrupu- lous of their investments in light of poor returns, full disclosure of risk has emerged as a key concern.

have leveraged on new technologies to gain market share and disrupt the status quo. E-commerce company Alibaba has blended the best attrib- utes of Amazon, eBay and PayPal to deliver premium service to its 300 million “real–name” 2 users. Access

2 A “real-name” is certified and linked to a Chinese bank account. Currently, there are 800 million registered accounts with Alipay that are not necessarily certified or backed by a bank account.

In fact, the inherent structure and regulation of mutual funds and

4 caceis news - No. 38 - June 2014

CACEIS’s Brussels office

CACEIS supports its clients’ development in the growing Belgian market CACEIS clients in

10.3% growth in assets for funds distributed in Belgium At the end of December €117.53bn, an increase of €10.98bn or 10.3% during the year. At the end of 2013, 1.4 million people in Belgium had saved a record €14.33bn via savings and pension funds. Belgium has the highest rate of mutual fund ownership per head in continental Europe at over €11,000 per person, and the highest investment rate, with over 14% of household savings held in the form of funds. Assets under discretionary management represented a total of €84.08bn, of which €70.80bn or 84.2% is managed on behalf of institutional investors. * CACEIS in Belgium is a member of the Belgian Asset Managers Associa- tion (BEAMA). Source: BEAMA 2013, assets of funds distributed publicly in Belgium reached

LEVERAGE EFFECT ON MARKET OPPORTUNITIES Since July 2013, CACEIS has offered a new depositary bank service in Belgium at a key time for asset managers. All current non-UCITS fund asset managers, which will become AIFs man- aged by AIFMs, need to send an accreditation request to the FSMA - Belgium’s financial markets supervisor - before 22 July 2014. AIFMs will have to meet the rules of the directive and choose a duly authorised deposi-

RISK CONTROL AND RESPONDING TO NEWMARKET REQUIREMENTS CACEIS allows cli- ents to meet EMIR demands relating to the measurement, mo- nitoring and reduc- tion of operating and counterparty risk. For bilateral OTC deriva- tive contracts, CACEIS offers modular services including valuation, portfolio reconcilia-

Belgium: economic growth above the average for the Eurozone: InMarch 2014, ratings agency Standard &Poor’s (S&P) revised its long-term rating (AA) on Belgium from “negative” to “stable”. The Belgian economy has held up fairly well against the financial crisis and for the period from 2014-17 is expected to achieve economic growth above the average for the eurozone. Belgium’s benchmark index, the Bel 20, is above its level of August 2008. Interest rates on public debt remain low.

Belgium benefit from the local knowledge of a long-standing operator in the Belgian financial market coupled with the expertise of one of the world market leaders in asset servicing. C ACEIS, which has been present in Brussels since 1997, offers a comprehen- sive range of services for clients active in Belgium, including de- positary, custody and fund admin- istration. This market presents considerable potential for develop- ment. During a period of extensive regu- latory changes - such as AIFMD, UCITS IV & V, MiFID, MiFIR di- rectives, EMIR - and changes in in- frastructures - such as T2S, CSDR - asset managers can rely on a ser- vice provider combining local ex- pertise and the resources of a large international group. CACEIS’ proximity to the Belgian market and its value-added services allow clients to benefit from both local opportunities for growth and those offered by the AIFM European passport, as well as cross-border fund structures under UCITS IV.

tion, initial and variable margin calculation and collateral management. Clients can delegate to CACEIS the report- ing of listed and OTC derivatives to trade repositories, as is mandatory as of 12 February 2014. CACEIS in Belgium offers transfer agent services for local and foreign funds, with the ability to offer com- munication and automated process- ing services ensuring rapid execu- tion and reporting. The bank also provides paying agent services. These various services, which are not exhaustive, reflect CACEIS’ ability to adapt to the new regula- tory framework and offer its clients innovative services. They benefit from the local market knowledge of teams in Brussels to develop their operations in Belgium and the comprehensive offering of an international market leader in asset servicing

tary. As Europe’s leading depositary and fund administrator of European alternative investment funds (AIFs), CACEIS offers a combination of outsourcing services for middle and back-office activities, helping to im- prove operating efficiency and risk control for AIFMs. The AIFMD di- rective requires AIFMs to provide the depositary with all of the infor- mation needed to verify the compli- ance of flows recorded in the AIFs cash accounts they manage on a dai- ly basis. This increases the interest for AIFMs in outsourcing adminis- trative and accounting tasks relating to the cash monitoring of AIFs to a single service provider offering cus- todian and fund administration ser- vices. CACEIS also offers AIFMs regulatory reporting services to al-

low its clients to comply with their new obligations. The bank can also contribute to its clients’ commercial development by offering structuring and support services for local and cross-border fund distribution. For example, CACEIS helps asset managers to set up cross-border master-feeder funds under UCITS IV in order to reach end investors all over Europe. This structure allows for a track re- cord to be maintained in funds under Belgian law and to associate funds with a Luxembourg-based fund. In this case, the fund structuring depart- ment helps clients with prospectuses setting, fund notification procedures in Europe and preparing KIIDs in the original language and for each coun- try in which the fund is distributed.

Key figures as at 31/12/2013

France COLAS, Head of Regional Coverage, Benelux-Nordic countries-Russia, CACEIS

Olivier STORME, Global Head Belgium & The Netherlands, CACEIS

Emmanuel ROUSSEAU, Branch Manager, CACEIS

No. 1 fund administrator for third parties in Belgium 26,961 NAV calculations in 2013 €12.6bn in assets under management nationalities (Belgian, Luxembourg, Dutch, French, UK, Irish, Norwegian, Maltese and Caribbean) ISO 9001 and ISAE 3402 Type II certification Financial services for more than 790 subfunds of different

Clients serviced by CACEIS's local offices not only benefit from the support of staff with a clear understanding of local market

CACEIS’ growth prospects in Belgium are positive insofar as we are now able to combine our long- standing fund

By bringing our depositary banking and custody expertise to the Belgian

market, and combining it with our pre-

issues, but also have access to the full servicing offer of one of the world's leading asset servicing groups, which is constantly enhanced to suit client requirements and regulatory developments. It is part of our strategy to provide market-leading solutions in order that our clients leverage AIFM and UCITS passport opportunities in Europe.

administration and transfer agent services with new depositary and custody services for UCITS, as well as for funds that will be covered by the AIFM directive. Our clients recognise the appeal of our operating model, which is based on specialist platforms and local operating teams working close to clients and who understand their needs.

existing fund administration offering, we are providing clients with a full service offering in all markets where they operate. Asset safety is a key consideration for our clients as well as their end-investors. CACEIS in Belgiumplays an important role in ensuring the highest level of security for those assets and compliance with the regulations so our clients can focus on their asset management decisions.

No. 38 - June 2014 - caceis news 5

Amundi is increasing its international presence

Guillaume Abel, Global Head of Marketing & Communication, Amundi

presence in Eastern Europe and

to market funds internationally. We have also used cross-border master-feeder structures, particu- larly by creating Luxembourg mas- ter funds and French feeder funds. This has the advantage of retaining funds' track records. We made the positive decision to use our Luxembourg platform for European distribution because of Amundi's long-standing presence in Luxembourg. How does CACEIS support you in these operations, and more generally in international fund distribution? CACEIS is a long-standing, high- quality partner in custody, fund ad- ministration and depositary bank- ing in all markets in which we want to increase our fund distribution. We have worked with CACEIS to set up a European centralising transfer agent system, enabling us to give our clients a single entry point for placing their orders and monitoring our fund liabilities. CACEIS has high-performance systems that give us a consolidat- ed view of our entire distribution network and fee calculations. This is a key commercial advantage, helping us to supervise the remu- neration and performance of our distributors, but also to adjust our strategy excluding all US investors, or en- gaging in the full registering and reporting process on their US ac- counts (“Reporting FFI” status). A number of promoters have already started reviewing their distribution strategies in order to limit FATCA's impact on their operations. For all of them, it is critical to be able to reassure their investors that the fund does not create any expo- sure to the 30% withholding tax on their US income. In July 2011, together with theDodd- Frank reform, the extra-territorial scope of the Investment Advisor Act was extended. Currently, for most EU asset managers, accepting US investors within the funds that they manage or advise may cause them to become subject to US rules and to be regulated by the SEC, which would then overlap with the regula- tions and supervision already appli- cable to them in Europe. Paradoxically, while AIMFD aims to harmonise rules and strategies, FATCA and the threat of overlap- ping regulations force the smallest asset managers to restrict their target market further, and the largest asset

suited to local requirements. For distributors and investors, the Amundi brand is synonymous with quality and a long-term view and market presence. We are raising - teractive communication methods, using social networks, websites and blogs to get information to our clients more quickly. What are the advantages of fund mergers and cross-border master-feeder structures under UCITS IV? Amundi has seized opportunities arising under UCITS IV to stream- line its fund ranges and to meet its international growth objectives. In 2013, we started cross-border fund mergers, folding France-based funds into Luxembourg-based funds - in fund size and the UCITS brand image, both of which are appreci- ated by investors and make it easier

Is the international fund distri- bution a major growth driver for Amundi? Yes, Amundi has a strategy to in- crease its cross-border fund distri- bution, and its international client base. We have asset management markets in Europe (Paris, London, Milan) and Asia (Japan, Hong Kong and Singapore). We recently took control of Smith Breeden in

the USA to offer asset management expertise in US dollar-denominat- ed products to clients based in Europe, Asia and the Middle East. Amundi's international market- ing efforts to develop new markets are focused on institutional cli- ents and third-party distributors. Christian Pellis, Global Head of External Distribution, has organ- ised the external distribution along geographical lines, aiming to meet

client needs effectively by being as close to them as possible. As a result, Amundi is increasing its

“web 2.0” interactive communication methods, using social networks, websites and blogs to get information to our clients more quickly.

New regulations have a major impact on distribution strategies

With AIMFD and FATCA taking full effect, and in view of forthcoming MIFID II, asset managers have to reconsider certain aspects of their distribution strategy.

sational and prudential standards. Although some are deciding to take the plunge and upgrade their organi- outsourcing solutions. They afford expert solutions without making in- vestments that would be dispropor- tionate in view of their strategy. Some asset managers in third coun- tries are taking a more wait-and-see approach. They can delay, making almost no changes, by using the re- mote marketing possibilities avail- able under local private placement regimes, although these are likely to disappear shortly. Eventually, the question for them is whether or not to withdraw from the European MIFID II AND PRODUCER- INVESTOR RELATIONS MIFID II, which is due to become applicable in 2016, raises many is- sues that are worth anticipating, as part of a fund distribution strategy. The extended range of professionals covered by MIFID II and the inclu- sion of sophisticated UCITS in the create additional responsibilities and costs for actors involved in the distribution of funds. The directive will also affect the growth prospects.

ta kool ot ekil srehto ,yadot snoitas remuneration structures of certain distributors. MIFID II forbids the payment of retrocession fees to in- vestment companies that market funds as part of an “independent” advisory service. To maintain re- lations with these intermediaries, alternative remuneration methods must be found, as is already happen- ing in the Netherlands and UK. This could lead to the creation of special classes of investor and, more gener- ally, is creating new challenges in - terparty quality. Another aspect of MIFID II con- cerns the opening-up of the EU market to third-country distribu- tors, provided that they can show an “equivalent” status. Some third- country distributors and/or produc- ers could consider carrying out cer- tain sales activities in the European authorisation or even establishing a permanent presence in Europe, pro- vided that they only distribute prod- ucts to professional investors and eligible counterparties.

F or asset managers with estab- lished positions in the UCITS market, little additional effort anAIMFD passport for their alterna- tive products. The “Super ManCo” concept and the AIMFD passport make the European market acces- sible at limited cost. These manag- ers' usual service providers offer SANDRINE LECLERCQ, Counsel, Baker & McKenzie

consistent services for regulatory reporting, distribution support, risk management and depositary control.

VARIOUS STRATEGIC APPROACHES TO AIMFD

FATCA AND US CLIENTS STRATEGY

For more specialised asset manag- ers, AIMFD raises the question of the operational model they should adopt to comply with new organi-

Asset managers must now choose between taking the radical step of

tnemges ot yllaitnetop sreganam

their strategy

6 caceis news - No. 38 - June 2014

Turnkey AIFM regulatory reporting compliance services

NEW BUSINESS

TWO LEVELS OF TAILORED REGULATORY REPORTING SERVICES

CACEIS is market leader in Germany for depositary services to closed-ended funds following numerous mandate wins Over the past 12 months, CACEIS was awarded some 24 new depository service mandates in Germany in the closed- ended fund sector. Closed-ended fund managers in Germany have recently undergone a period of restructuring led by the AIFM Directive which was implemented in July 2013. CACEIS offers a range of fully-compliant AIFMD services to private equity and real estate funds including aviation, renewable energy and shipping containers. AIFMD restructuring, together with the ongoing trend of outsourcing non-core business activities, has opened up many new opportunities for CACEIS to provide support services that go beyond traditional fund depositary services €16bn in assets for 16 real estate investment companies AXA Investment Managers Deutschland GmbH AXA Investment Managers Deutschland GmbH (AXA IM Deutschland) has decided to engage CACEIS as depositary for its entire existing real estate open- ended mutual and special funds business in Germany, with a total fund volume of some €2.5bn Sal. Oppenheim jr. & Cie. Company CACEIS provides depositary services for real estate and other physical assets in Sal. Oppenheim’s open- and closed-ended funds in Germany. Sal. Oppenheim and CACEIS are working closely together to ensure all concerned funds will be migrated to CACEIS by the end of 2014, subject to the approval of clients and institutional end-investors. The migration volume amounts to some €12bn in physical assets

A PARTIALLY OUTSOURCED SOLUTION

T he AIFMD presents develop- ment opportunities for asset management companies, as well as stringent provisions. Of these, regulatory reporting is one of the chief concerns of asset management companies due to the large number of pieces of information required. The AIFMD subjects AIF managers - whether AIFM authorised or not - to new periodical reporting require- ments concerning their investments, leverage and exposure to regulators when they manage or distribute AIFs within the European Union. One of the main aims of AIFM regulatory reporting is to allow for the identifi- cation and monitoring of sources of systemic risk by European regulators. The European Securities and Markets Authority (ESMA) plays a predomi- nant role in the definition of reporting requirements and their application. It provides regular clarification about reporting standards, published in its October 2013 final guidelines on the comprehensive regulatory reporting required under AIFMD. The national regulators in the European Union in- clude these reporting requirements in their supervisory practices. The ESMA adopts a pragmatic and flex- ible approach, for example taking ac- count of AIFM approval dates to set the initial reporting date. AIFM re- porting is common to all AIFMs and AIFs and includes three main catego- ries of information: firstly, reporting at the level of the AIFM with identi- fication data and information about their main markets, instruments and meet the requirements of the new regulation while taking advantage of opportunities. REGULATORY REPORTING REQUIREMENTS CACEIS is investing heavily to help its clients to comply with the AIFM directive. This allows them to

The first level is targeted at asset management companies whishing to remain in control of the reporting production process. Within this framework, CACEIS is able to provide the AIFMs with data (assets under management, exposure of the AIFs or compartment calculated using the gross method, exposure of the AIFs or compartment calculated using the commitment method and calculation of leverage) to allow for the production of AIFM reporting. CACEIS can also provide validated reports ready to be sent to the supervisory authority, accompanied by the information needed for reporting at the level of the AIFM. The asset management company, or its service provider, produces and sends the report to the supervisory authorities. The second level of service includes complete preparation of reports (302 fields for AIFs and 38 for the AIFMs), as well as checking, monitoring of dates and sending reports to the supervisory authorities as part of a technical delegation given by the asset management company, which Reports are validated by clients before they are sent. CACEIS then forwards reports in the format required by each local authority and deals with any rejections. Many clients in various parts of Europe in which CACEIS operates opt for this service. remains responsible with regard to the supervisory authorities. A COMPLETE REPORTING SOLUTION

NATHALIE POUX-GUILLAUME, Product Manager, CACEIS

assets under management; secondly, detailed reporting at the level of the AIF, with in addition to identification data, information about exposure and concentration, investors, risk pro- files, liquidity, markets and counter- parties; thirdly, specific reporting if significant use is made of leverage. Practically, some information needs to be consolidated at the level of the AIFM, while other information needs to be codified and formatted accord- ing to the requirements of the regu- lator, and some information needs to be calculated. The nature and frequency (quar- terly, half-yearly or yearly) of re- porting requirements depend on the asset threshold of AIFs managed by the AIFMs and whether or not they make use of leverage. The ESMA recommends that the initial report- ing period begins on the first day of the quarter following accreditation of the AIFMs and ends on the last day of the reporting period. FINAL STAGES The deadline for AIFM authorisa- tion applications is 22 July 2014 and the first quarterly regulatory reporting deadline for France and Luxembourg is 30 October 2014. AIFMs are entering the final stages for complying with ESMA report- ing requirements. Adapting their

systems and organisational struc- ture to these demands takes up a great deal of resources and time. It also requires the analysis of numer- ous pieces of data to be collected and consolidated, as well as defin- ing calculation rules, setting up the reporting process and also the ability to communicate with differ- ent supervisory authorities in XML format. A dedicated regulatory re- porting department is in charge of processing and control. CACEIS offers two levels of ser- vices tailored to client requirements and allowing them to comply with the AIFMD. The Group has cutting- edge IT systems able to collect and consolidate data, perform the various calculations and connect to the different supervisory authori- ties. Its product managers and fund structuring teams are involved in various marketplace groups where they track regulation and standard changes, different interpretations and local adjustments. Its fund data and accounting analysts are actively involved in the process. CACEIS’s teams committed to cli- ents run tests with them and the national competent authorities to ensure that the reports produced comply with the various standards before the launch date

Highlight

AIFMD, a charter governing the role of the external valuer

On 9 th April 2014, at the French Association of Securities Professionals (AFTI) conference in Paris, Carine Echelard , Managing Director, CACEIS in France, discussed the AIFMD framework and highlighted the aims of the professional conduct charter for external valuers (EVs). The purpose of this document is to: ▷ Contribute to establishing a formal relationship between the EV and the manager of AIF; ▷ Clarify the requirements governing the asset valuation tools and methodologies used by EVs; ▷ Answer questions about independence, ethics and compliance principles applicable to EVs. CACEIS contributed to the drafting of this charter and complies with it.

No. 38 - June 2014 - caceis news 7

Breakfast seminar organised by CACEIS in Paris

CSR award for CACEIS

Clients explored the operational issues arising from the settlement cycle change to T+2 and the launch of T2S. The event took the form of presentations and audience Q&As.

As of 6 October 2014, the settlement cycle for securities will be two days after the trade date (T+2) for 24 European markets, before the first migration wave of TARGET2-Securities (T2S), expected to be imple- mented after June 2015, (in 2016 for French, Belgium, Dutch, German & Luxembourg markets). Introduction: Joe Saliba , Deputy Chief Executive Officer, CACEIS. Regulatory framework and agenda: Eric Derobert , Head of Group Communications & Public Affairs, CACEIS. Impact of T2S and T+2 for asset managers : Thibaut de Lajudie , Partner, Ailancy. Solutions to cope with challenges: Arnaud Misset , Deputy Group Director Products & Solutions, CACEIS. CACEIS, a direct participant in the T2S platform, will offer its cli- ents a single point of access to all European markets via a direct connection that will improve handling of instructions and optimise their settlement

O n 18 March 2014, CACEIS Bank Luxembourg re- ceived for the second time and for a three-year period a corporate social responsibility (CSR) award from Luxembourg’s national institute for sustainable development and corporate social responsibility (INDR). INDR pub- licly recognises CACEIS’s ability

to successfully meet the three CSR pillars: economic, social and envi- ronmental (ESG). INDR praised CACEIS's voluntary approach to involve its staff in a framework allowing them to meet client needs by combining effi- ciency, ethics and compliance with regulation

1 1 J U N E 2 0 1 4 Breakfast Seminar

In the press - Q2 2014

April 2014 L'Agefi Hebdo “ AIFMD depositaries between opportunities and stringent provisions ” Corinne Socha, Deputy Head of Trustee Services, CACEIS

April 2014 L'Agefi Hebdo

May 2014

May 2014

Börsen-Zeitung “ Closed-ended fund managers focus on their core competences ” Holger Sepp, Co-Head, CACEIS, Germany

L'Agefi Hebdo “ Clearing of derivatives towards a newmodel ” Marc Giannoccaro, HOL Prime Fund Solution, CACEIS

“ CSDs in a European framework ” Eric Derobert, Head of Group Communications and Public Affairs, CACEIS

Conferences- Q3/Q4 2014

LUXEMBOURG

23-24 September 2014 ALFI Global Investment Funds Forum with NICSA & HKIFA

23-26 June 2014 Fund Forum International 2014 François Marion, CEO, CACEIS “ Conclusion of the AssetManagementMoves into the spotlight , research paper” Joe Saliba, Deputy CEO, CACEIS “ HowChina Sees TheWorld - AGlobal Economic Perspective FromOneOf TheWorld’s Largest SovereignWealth Funds ” Pierre Cimino, Responsible for CACEIS entities in Luxembourg, Belgium, the Netherlands, Italy and Hong Kong “ Regulatory CollaborationOutsourcing ” Holger Sepp, Co-Head, CACEIS in Germany MONACO

MONACO

8-10 September 2014 Capital Creation

“ Private Equity & Real Estate ” Barry McGloin , Business Development Manager, CACEIS

6-8 October 2014 EXPO-REAL MUNICH

BOSTON

29 September- 2 October 2014 SIBOS

3 July 2014 - EDHEC-Risk Days “ FromAsset Allocation to Risk Reporting ” David Li , Managing Director, CACEIS in Hong kong SINGAPORE

EDHEC-Risk Days Asia 2014

8 caceis news - No. 38 - June 2014

Country Focus - Luxembourg

Worldwide

Europe

Source: EFAMA - May 2014

Source: EFAMA - April 2014

Germany focus in the next CACEIS news

Net assets under management (AUM) in Luxembourg funds (€ trillion) - Q3 2014

Worldwide Investment Fund Assets Q4 2013 (€ trillion)

Net asset of the European Fund industry Q1 2014

€2.7tr +7.13% /Q3 2013

+1.8% /Q4 2013

€10.1tr +3.8% /Q4 2013

€23.7tr

€2.7tr net assets under management in Luxembourg investment funds at the close of Q1 2014. This represents an increase of 3.59% since the 1 st January 2014 and a growth rate over the last 12 months of 7.13%. Net assets managed by investment funds under Luxembourg law reached €2.6tr at the end of December 2013, an increase of 9.75% compared to €2,3tr at the end of 2012 . With €193 bn in 2013, net sales of Luxembourg investment funds accounted for nearly half of all sales for the European fund industry.

2,529 2,565 2,584

2,487 2,523 2,499 2,539 2,590 2,608 2,615 2,624 2,680 2,709

Investment fund assets worldwide stood at a new all- time high of €23.7

The combined assets of the investment fund market in Europe, i.e. the market for UCITS and non-UCITS, increased by 3.8% during the first quarter of 2014 to break through the €10 trillion mark for the first time.

trillion at end 2013, reflecting growth of 1.8% during the fourth quarter and 7.3% since end 2012. 2012 2013

Top Ten

Trends by investment type

Q4 2013 (€ trillion)

03/13 04/13 05/13 06/13 07/13 08/13 09/13 10/13 11/13 12/13 01/14 02/14 03/14

France €1.5tr

Luxembourg €2.7tr

Source: CSSF as at 31/03/14

On a Euro–denominated basis, equity fund assets worldwide increased 5% during the fourth quarter to €9.6 trillion, whilst net assets of balanced/mixed funds increased by 2.9% to stand at €2.7 trillion. Over the same period, net assets of bond funds fell 1.9% to stand at €5.2 trillion and net assets of money market funds reduced 0.7% during the quarter to stand at €3.5 trillion.

Market shares of fund promoters by country of origin - Q1 2014

22.6%

US Market share:

Ireland €1.4tr

Germany €1.4tr

612

At the close of March 2014, in terms of net assets US promoters held on the first place which they have occupied since September 2009 with a market share of 22.6%. US, Germany and Switzerland still account for more than 50% of the overall market as in 2013.

€9.6tr €5.2tr €3.5tr €2.7tr

+5.0%

Equity

420 407

378

Switzerland €367bn

UK €1.1tr

-1.9%

Bonds

221 203

Money Market

-0.7%

159

130

64 58 57

+2.9%

Balanced

US GB DE CH IT FR BE LU NL SE Others

Italy €217bn

Denmark €225bn

Source: CSSF as at 31/03/14

10

8

6

Domicile market share for cross-border fund distribution - Q4 2013

4

Spain €199bn

Sweden €214bn

67%

2

Luxembourg Market share:

0

Q4

Q1

Q2

Q3

Q4

2012

2013

Net sales of Investment Funds Q4 2013 (€ billion) €229bn +26% /Q3 2013 In the fourth quarter of 2013 investment funds worldwide registered net inflows amounting to €229bn, up from €182bn in the third quarter. Overall in 2013 worldwide investment funds

Net sales of UCITS

Ireland 19%

France 4%

Luxembourg 67%

Q1 2014 (€ billion)

+190% /Q4 2013

With 67% of the worldwide cross border registrations, Luxembourg remains the leading cross-border fund domicile in 2013. With 19% Ireland registered an increase compared to18% in 2012.

€148bn

UK 2%

Other 5%

Jersey 3%

UCITS registered the largest quarterly net sales since 2006 during the first quarter of 2014. Net sales totalled €148 billion, up from €51 billion in the previous quarter. (+190%) 95 78 132 148

attracted net sales of €839bn, up from €828bn in 2012.

369

320

Source: PwC as at 31/12/13

229

193

182

167

109

51

99

34

20 2012 8

12

2013 2014

2012

2013

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Publishing Director: Eric Dérobert - Editor: Philippe Naudé +33 1 57 78 10 68 philippe.naude@caceis.com - Design: Sylvie Revest Photos credit: Yves Maisonneuve, Yves Collinet, CACEIS; Dominique Amphonesinh; Fotolia - Printer: GRAPH’IMPRIM certified Imprim’vert®. This document is printed on Cyclus paper, 100% recycled fiber, certi- fied Blaue Engel, Nordic Ecolabel and Ecolabel européen - Number ISSN: 1952-6695. For further information on our products and services, please contact your Business Development Manager. This newsletter has been produced by CACEIS. CACEIS cannot be held responsible for any inaccuracies or errors of interpretation, which this document may contain. www.caceis.com