CACEIS NEWS 35

4 caceis news - No. 35 - October 2013 products and services CACEIS playing key role in Luxembourg’s growing real estate fund market Luxembourg – a leading European domicile for regulated real estate funds.

incorporated as an FCP (Fonds Commun de Placement or Common fund). Its use also ex- tends to areas as diverse as North America, Asia and Africa. The majority of real estate funds in Luxembourg are governed by the SIF Law, which reflects the popularity of the regime for real estate fund initiators using a regulated onshore investment fund vehicle. In order to remain fully compli- ant with the new requirements laid out in the AIFM directive, Luxembourg made a number of modifications to its SIF law back in June 2012. In 2013, the regulator approved the adoption of a new legal structure known as an SLP (Special Limited Partnership), which is inspired by the popular company structure used in the US, UK and a number of other countries. Luxembourg is now in a strong position to leverage the opportunities AIFMD presents in Europe and seek to create a brand in the alter- native investment market, similar to the global brand it has built up with UCITS.

CACEIS can help real estate managers take full advantage of AIFMD’s opportunities CACEIS’s dedicated PERES team (Private Equity & Real Estate Servicing) is composed of real estate specialists in Germany, France, Luxembourg, Switzerland, the United States and Canada, and services more than €50 billion in assets. The teams have gained extensive expertise in the real estate industry over the past decades, pro- viding effective support to real estate managers investing directly or indirectly via local SPVs. CACEIS offers fully outsourced or modular so- lutions to real estate managers, and can advise companies on establishing a regulated vehicle in Luxembourg. The PERES team also provides a range of additional services covering company secretary, domiciliation, investor services, ac- counting, financial reporting, depositary, custo- dy and cross-border fund distribution support ■

annum since 2006, when real estate assets under management in the Grand Duchy totaled some €8 billion. 35 regulated real estate investment funds were launched in 2011, bringing the total number of real estate funds established and ad- ministrated in Luxembourg to 183 in July 2012. A decade after Luxembourg’s success in de- veloping its cross-border UCITS industry, the Grand Duchy has again sought a central role in Europe’s cross-border real estate industry. Today, Luxembourg has become the preferred domicile for the establishment of funds invest- ing in multi-sector real estate assets, distributed to institutional investors around the world. Often categorised as “real estate investments”, some of the main European infrastructure investment vehicles have elected to domi- cile in Luxembourg. These finance important Brownfield or Greenfield development projects such as Private Public Partnerships for trans- portation infrastructure, telecommunications infrastructure and renewable energies devel- opments. A Domicile with a Stable, Business- Friendly Legal Environment The Luxembourg Specialised Investment Fund (SIF) was launched in 2007 and is regulated by the CSSF, Luxembourg’s financial authority. Over the years, it has proved to be an ideal vehi- cle through which to acquire real estate assets in Europe, especially property in Germany, when investment management and from the de- positary bank. Asset Managers must also possess information systems suitable for identifying the various categories of risks to which the funds are exposed (market, li- quidity, counterparty, operational, etc.) and set up appropriate systems and procedures to manage those risks. In addition, fund man- agers are obliged to conduct stress tests on their portfolios on a regular basis. Accordingly, the directive obliges manage- ment companies to rethink their organisa- tional model, and they can count on CACEIS to help them with assessing the directive’s impact on risk management and to provide them with operational assistance. The CACEIS group has set up Luxcellence, a management company in Luxembourg, reg- ulated by the CSSF in accordance with the regulations for conventional and alternative funds. Since its inception, Luxcellence has developed expertise and a complete range of services adaptable to different manage- ment profiles. Leveraging the experience ac- quired by supporting international manag- ers on conventional and alternative vehicles, Luxcellence is able to act as a delegated risk management provider. Separated from CACEIS from a functional and hierarchical perspective, Luxcellence meets every aspect of the directive’s require- ments concerning the delegation of risk management by an investment company. Luxcellence has its own governance frame- Risk Management support by Luxcellence

Net assets under management in Luxembourg real estate funds (€ billion)

10 15 20 25 30

Part II (2010 Law)

Institutional Funds/SIF (Law of 13 February 2007)

W ith more than 180 funds and net assets in excess of €25 billion, Luxembourg is one of Europe’s lead- ing domiciles for regulated, cross-border funds investing in real estate. The real estate investment fund industry in Luxembourg has grown by more than 20% per pascal hernalsteen, Head of Private Equity & Real Estate Servicing, CACEIS, Luxembourg

0 5

2000

2001

2002

2003 2004

2005

2006

2007

2008

2009 2010

2011 07/2012

Sources: ALFI/CSSF

Set-up of a Risk Management framework With Luxcellence, clients enjoy the benefit of economies of scale and customisable so- lutions that are immediately operational. They can supplement the delegation of risk management with made-to-measure perfor- mance measurement and market risk analy- sis services through various simulation sce- narii (VaR, IRR and stress tests). The Group frees up its clients from the administrative burden arising from regulatory changes, enabling them to focus on their core compe- tencies and the new opportunities created by the European passport ■ A delegated risk management solution for AIFs Investment management companies can delegate their risk management function

work and possesses a risk management team with 13 analysts dedicated to this function, which is independent of CACEIS’s operational services but still benefits from the Group’s tech- nological infrastructure. This framework al- lows everyone to conduct their activities with- out conflicts of interest arising. In addition, the risk management team uses industry-leading software and conducts an ongoing market watch, adjusting its model when necessary. Luxcellence helps its clients to assess the risk profile and devise the appropriate risk management framework according to their strategy for conventional, alternative, private equity and real estate funds. It also assists with the drafting and regular monitoring of the risk management policy. For each fund, a risk matrix is produced through analysis of the performance and investment objectives. It includes indicators for each type of risk (market, credit, liquid- ity, operational, valuation, counterparty, distribution, performance, compliance with regulatory ratios). An Executive Report aimed at senior manag- ers analyses large pools of data to provide key risk indicators, and proposes potential ac- tions when required. It provides a snapshot of all the events, giving clients an overview of the business using tables, charts and a brief commentary including any breaches of regu- latory or statutory ratios. Luxcellence’s ana- lysts meet with clients on a regular basis to provide them with additional explanations.

T he AIFM directive stipulates the ob- ligation for AIF managers to comply with a series of standardised valua- tion and delegated risk management rules. In this area, the directive requires manage- ment companies to separate risk manage- ment from operational functions, from the to CACEIS to ensure they remain in full compliance with AIFMD.

Executive Report

Compliance Risk

Distribution Risk

Performance & Market Risk

Operational Risk

Liquidity Risk

Counterparty Risk

Settlement Risk

pascal pira, Head of Risk Management, Luxcellence, CACEIS