CACEIS NEWS 39 EN

THE ASSET SERVICING JOURNAL

SEPTEMBER 2014 N O. 39

www.caceis.com

Editorial

JOE SALIBA, Deputy CEO, CACEIS When our clients dial back their activity levels over the summer, it provides CACEIS with an ideal opportunity to review strategic goals and fine tune our approach to achieving our growth targets as well as our clients’business development objectives. With summer now firmly behind us, we are closely focused on developing four key areas, and have implemented targeted investment campaigns to promote these products, all four of which are designed to meet the ongoing market needs of both existing clients and prospects. Our‘Prime Fund Solutions’ clearing service has significantly strengthened our group’s offer in electronic execution and listed derivatives clearing, enabling us to provide effective support to clients worldwide. Emir regulations have also played a role in driving product innovation in our OTC derivative clearing offer and collateral management from‘execution to custody’, and today we are in a strong position to add real value to our clients’businesses in these areas. Furthermore, to meet specialised needs of the growing private equity & real estate sector, CACEIS’ dedicated PERES division has been significantly enhanced to provide some of the most advanced IT platforms designed to enable PERES asset managers to better keep track of risks and performance. And finally, our investments also cover major upgrades to our securities lending systems, which have greatly improved our ability to provide automated front-to-back-office integration, increasing the efficiency and accuracy of data transfers for reporting purposes for clients using the program. In conjunction with these key product development initiatives, we have also made significant investments into our ability to service clients from their local markets. This is especially the case in Italy, where notwithstanding our early 2014 launch, we are today able to offer the full range of CACEIS’ products and services to clients operating in the Italian market. The speed with which we have brought the comprehensive servicing offer to the market clearly demonstrates our full commitment to supporting the needs and the business development objectives of clients in Italy’s fund industry

CACEIS provides clients with a unique platform allowing execution of cash equities, futures and options on organised markets that is fully integrated into CACEIS' global asset servicing backbone. Execution to Custody, an innovative model

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Private Equity and Real Estate Solutions.

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A GLOBAL APPROACH IN LINE WITH CLIENTS’ NEEDS CACEIS’s integrated model in- cludes execution and clearing for cash equities, futures and options, collateral management, custody, fund administration services and reporting. CACEIS enables asset managers to modernise their workflow in ensur- ing full STP, to improve their ac- cess to liquidity, to rationalise their trading costs, to reduce their opera- tional risks. Such services permit our clients to focus on their core activity which is to make invest- ment decisions. Our comprehensive post-trade processing and reporting service, offers a real streamlining of

flows and operations, and thus im- portant savings in time and energy usually spent in poor added value tasks. This setup provides a frame- work in full compliance with MiFID Directives and EMIR regulations. Following the shifting regulatory environment, CACEIS is develop- ing OTC Clearing capabilities by merging these new developments within its core clearing platform dedicated to listed derivatives. In the coming years, the border be- tween OTC and listed derivatives will become increasingly blurred and collateral management is be- coming a key component of the global offer. continued on page 6

Servicing clients in Ireland’s growing fund market.

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Supporting Private Equity and Real Estate funds' international growth plans.

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Business support services customised to Private Equity funds.

We look forward to welcoming you to our stand G48 at Sibos in Boston. Key people from executive management, business development and operations from our international offices will be on hand to share with you our bespoke solutions for your specific needs.

Solvency II: enhanced look-through reporting.

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A resurgence in the securitisation market.

CACEIS Stand G48

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2 caceis news - No. 39 - September 2014

Private Equity and Real Estate Solutions CACEIS’s dedicated PERES (Private Equity, Real Estate and Securitisation) team meets fund managers evolving needs with bespoke servicing through its offices in Europe, North America and Asia. Heads of sales from our PERES offices in Germany, Ireland, Luxembourg and France highlight the main local trends and the customised solutions designed to suit any structure, strategy or country throughout the investment life cycle.

NEW BUSINESS

RWB selected CACEIS as depositary for private equity funds RWB PrivateCapital Emissionshaus AG (RWB), based in Munich, has selected CACEIS as depositary under KAGB. RWB is thus complying with new obligations in the German Investment Act relating to the Alternative Investment Fund Managers (AIFM) Directive which came into force on 1 st July 2014. The mandate concerns 20 private equity funds of funds totalling €1 billion in assets. "We have selected CACEIS, a company known for its extensive expertise in the area of closed-ended funds," stated Norman Lemke , Managing Director of RWB. "We were particularly impressed by CACEIS' migration experience, which means a rapid implementation of KAGB Germany, said: "We are proud to have won RWB's confidence on the strength of our service offer’s reputation in the market. RWB is the market leader for private equity funds of funds in Germany and has an extensive portfolio of international private equity investments with a wide range of funds of funds. Due to the size of the mandate, the project required precise planning to ensure its smooth implementation. CACEIS has the necessary skill to carry out such a complex migration." CACEIS is market leader in Germany for depositary services to closed- ended funds following numerous mandate wins. €15bn in assets 16 real estate investment companies 100 real estate funds Over the past 12 months, CACEIS was awarded some 24 new depositary 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 AIFMDirective 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. requirements can be ensured." Holger Sepp, Member of the Management Board, CACEIS in Over 30 AIMFs (issuers of closed-ended funds)

CACEIS in Germany was quick to offer broad know- how across all types of assets and the ability to handle the specifics of closed-end funds.

HOLGER SEPP, Member of the Management Board, CACEIS in Germany

HEIKE FINDEISEN, Business Development Director, CACEIS

CHRISTIAN HOGREBE, Business Development Director, CACEIS

THE INCREASING IMPORTANCE OF THE DEPOSITARY IN THE FUND INDUSTRY Holger Sepp - German asset man- agers' initial reluctance to imple- ment the AIFM Directive has faded as the benefits of the new standards which have a distinct advantage in attracting investor money. Due to the new set-up, issuers, asset managers and institutional investors reassessed their respective business model, which consequently made them reconsider outsourcing tasks outside their core competences to external partners. CACEIS recog- nised the opportunities arising from this changing environment early on and was one of the first depositar- ies to prepare for them. CACEIS was quick to offer broad know-how across all types of assets and the ability to handle the specifics of closed-end funds. The Group was the market leader from the outset af- ter winning more than 30 mandates in the closed-end fund segment from well-known companies like LHI Leasing, GLL and reconcept. How important the capacity to service all asset types is, was con- firmed by the recent survey con- ducted by the German Association for Physical and Investment Assets (Bundesverband Sachwerte und Investmentvermögen e.V. – BSI) among its members. On average, they reported that there were five as-

reliability and cost efficiency. Over and above these quality-enhancing premium services, CACEIS also of- fers solutions which enable clients to create direct added value for their business. GLOBAL DEPOSITARY FOR CROSS-BORDER SERVICES Heike Findeisen - Non-EU fund managers, for instance from the US or Switzerland, who intend to distribute their products in different jurisdictions in the EU, will have to meet the new provisions of the AIFM directive and they will therefore become more reliant on suitable partners. In Germany, for example, the new investment guideline in chapter 330 of the German capital investment act (KAGB), requires managers to select a depositary. CACEIS, as depositary bank with a strong European foot print, is well positioned to assist clients who have an international distribution strategy in the key markets for real estate: Germany, Luxembourg, UK, France, Switzerland, Italy and Ireland. Aside from depositary solutions, CACEIS can offer assistance to cross-border fund distribution such as being infor- mation or representative agent for the structures. The Group's dealing room services offer key added value if transac- tions in the underlying real estate objects FX’s or hedges have to be executed

set types involved when requesting authorisation for newly-launched closed-end AIFs. The five most fre- quently mentioned were domestic and international real estate, infra- structure, renewable energies and aviation. The relatively high number of man- dates entrusted to CACEIS also shows that issuers, asset managers and institutional investors are look- ing for a single depositary partner who can handle all outsourced tasks, which enables a better understand- ing of shared processes and interfac- es. CACEIS has positioned itself as a provider of such one-stop-shop so- lutions. In addition, CACEIS offers a broad service range, a high rate of automation, the capacity to handle large processing volumes. Christian Hoegrebe - Understan- ding “real assets” is not the only key factor in the success of CACEIS. The company also places great emphasis on seamless client support. As an established depositary, CACEIS offers a clear project structure adapted to the individual needs of issuers, especially those of “real assets”. The depositary provides an experienced project manager who bears responsibility for project success and is available to both parties. The project manager as the required expertise in tangible products, knows the typical PROFESSIONAL ON-BOARDING SERVICE

processes of issuers and has the appropriate experience in launching structures with “real assets”. CACEIS sets up dedicated on- boarding teams which develop customised solutions for specific client requirements, facilitate short project lead times, reduce friction losses and minimise coordination problems. This enables optimal as- surance of issuers’asset managers' satisfaction as depositary clients in subsequent daily business opera- tions. CACEIS sets up dedicated on-boarding teams which develop customised solutions for specific client requirements. This flexible approach also permits CACEIS to manage the “cash ac- counts” of closed-ended funds in the bank itself or in a third-party bank which, for example, may be financ- ing a building or property. This in- cludes a flexible and transparent pricing model. In addition, a proven cash monitoring and inventory man- agement system at CACEIS is both technically and procedurally inte- grated into service delivery, ensuring a high standard of quality, process

EXPO REAL, in Munich is the biggest B2B trade show for property and investment in Europe and offers optimum conditions for efficient networking and extensive opportunities for market orientation and analysis. We look forward to welcoming you to HALLE A2, stand 540. Key people from our international offices will be on hand to discuss our bespoke solutions for your specific needs.

“The new AIFM Directive: Reporting on experience so far” Holger Sepp , Member of the Management Board, CACEIS in Germany Monday, 06.10.2014 / 17:00 - 17:50 Hall A2, Stand 540

No. 39 - September 2014 - caceis news 3

Servicing clients in Ireland’s growing fund market

NEW BUSINESS

Boussard & Gavaudan Investment Management LLP Boussard & Gavaudan (Umbrella Fund PLC and BG Master Fund PLC) was one of the first of CACEIS Ireland’s clients to receive its AIFMD accreditation in July 2014. CACEIS BL Dublin Branch acts as Depositary to the Irish Fund. Boussard & Gavaudan required a service provider who had full knowledge of the alternative fund industry and the Irish requirements as well as an in-depth understanding of the many complex issues raised by AIFMD. CACEIS were able to inform Boussard & Gavaudan of the developing local regulatory framework and assist them in the drafting of legal contracts, specifically with regard to prime broker arrangements. Boussard & Gavaudan: “In our experience, CACEIS were proactive and had a sound understanding of the AIFMD legal and regulatory issues as well as product requirements. Through their ongoing engagement with the Central Bank of Ireland and industry associations, CACEIS provided invaluable information and were able to guide us in the setup of the post AIFMD Depositary- Prime broker arrangements. The ultimate arrangement put in place is based on the pre AIFMD Irish prime broker model, which involved the appointment of prime brokers as sub- custodians. This model enables us to operate efficiently with the prime broker community, and at the same time comply with the new AIFMD requirements.” CNP Assurances Following a request for proposal, CNP Assurances, France’s leading personal insurer, has reaffirmed its confidence in CACEIS, for a duration of 5 years, renewable up to 9 years, for the safekeeping of all its foreign and domestic assets, relating to its insurance business in France. The agreement covers €280 billion in assets. In addition to custody, the contract encompasses settlement bank services, registrar, general assembly meetings, selected back office processing of non-listed investments, management of collateral and processing of stock lending and repos Silver Time Partners Management company Silver Time Partners has selected CACEIS for its first Luxembourg UCITS SICAV, “Silver Time LOQ Equity SICAV”, launched on 5 September. CACEIS provides a wide range of services to Silver Time Partners: custodian and depositary functions, fund administration, foreign exchange, transfer agent and domiciliary agent for the SICAV. Listed derivative execution and clearing services are also provided. Olivier Nobile , CEO of Silver Time Partners, stated: “We have selected CACEIS as a partner to support the launch and international distribution of our first UCITS investment vehicle because of its vast experience of European markets. Its comprehensive service offering, from execution to custodian services, meets all our operational needs perfectly. Entrusting our business to a first-rate service provider is a hallmark of quality and of security for our investors.”

ANNIE BLOUIN

CLARA DUNNE

DAVID BAERT

PADDYWALSH

Head of Regional Coverage

Senior Country Officer,

Responsible for CACEIS entities in Ireland, North America & UK

Business Development Director

I Ireland, North America & UK

CACEIS Bank Luxembourg - Dublin Branch

for UK and Ireland

vices. CACEIS in Ireland is a key entity for the Group. As an increasing number of North American and UK Hedge Funds, Private Equity andReal Estatemanag- ers are shifting jurisdiction to Ireland, particularly those based in off-shore centres, having a fully-fledged office in Ireland to serve overseas clients' demands is essential. Authorities in Ireland took pre- emptive steps to update Irish AIF structures before the AIFMD was implemented with many enhance- ments facilitating Private Equity and Real Estate investment in particular. CACEIS in Ireland can help Private Equity and Real Estate managers take full advantage of AIFMD’s opportunities and launched regu- latory reporting services helping firms comply with the Directive. The Group’s considerable expertise in alternative investment servicing gives it a ranking among the premier global service providers for Private Equity and Real Estate funds. Private Equity & Real Estate ser- vicing (PERES) is an expert market where the right skills, experience and resources are vital to succeed. By combining specific private eq- uity & real estate services with the group’s solid custody and adminis- tration services, CACEIS gives man- agers the support they need to create new vehicles, thereby adding real value to their business. The Group’s dedicated PERES team is composed of real estate specialists in Germany, France, Ireland, Italy, Luxembourg, Switzerland, the United States and Canada, and services more than “CACEIS in Dublin is best positioned to provide full service offerings to alternative asset managers in the context of AIFMD. Utilising the Group’s global platformand operatingmodels, dedicated to the alternative space, combined with a strong local expertise, CACEIS Ireland delivers superior services fromexecution to custody. Additionally, the strong integration between CACEIS North America and CACEIS Ireland can help US investment managers to launch funds in Europe using Ireland as domicile."

“CACEIS’ multi- jurisdictional offering brings a competitive advantage that firms

in Ireland, including unit trusts and public limited companies, which are the country’s most popular struc- tures for funds. The ICAV will be a new corporate vehicle designed for Irish investment funds, providing a tailor-made corporate fund vehicle for both UCITS and alternative in- vestment funds (AIFs). The ICAV will have a number of benefits over the existing Irish corporate structure including dispensing with Annual General Meetings in specific cir- cumstances, more streamlined au- dited accounts and constitutive documents. Another important fea- ture of the ICAV will be its ability to elect its classification under the US check-the-box taxation rules to benefit from favorable tax treat- ment. Up to 100 new funds record- ing more than €10bn in assets are set to be launched in Ireland using the country’s forthcoming corporate fund structure, with most of these funds re-domiciling from rival ju- risdictions, according to the Irish Funds Industry Association. TAKE FULL ADVANTAGE OF AIFMD’S OPPORTUNITIES CACEIS is a well-established cus- todian and fund administrator in Ireland, servicing corporate and in- stitutional clients’needs worldwide and providing depositary, custody and fund administration to tradi- tional and alternative funds, includ- ing private equity and real estate funds. The group has been active in the Irish market since 2000 and clients have access to the full range of services offered by the CACEIS Group, including capital market ser- adding industry-leading reporting, we can provide a service that handles their administrative needs and enables them to focus on generating investor value." “Recent market events and increased reporting requirements from institutional investors are compelling private equity real estate firms to reassess their back office operations in terms of cost effectiveness. By expanding our PERES offering - fromaccounting and administration to custody and cashmanagement - and

“With 76% of US players and 79% of UK firms listing Ireland as their top three preferred domicile, CACEIS Ireland is and will continue to be a strategic entity for the Group."

operating only domestically find hard to compete with. Our staff in Ireland, like in our other entities is highly skilled and keen to seek out cross-selling opportunities. We have built up a large network of clients in the US, the UK and mainland Europe, and that has opened many doors for CACEIS in Dublin”.

Asset managers with CACEIS in Ireland benefit from extensive

€96 billion in assets under deposi- tary. The teams have gained ex- tensive expertise in the PE and RE industry over the past decades, pro- viding effective support to managers investing directly or indirectly via local vehicles. CACEIS’ alternative investment servicing business is based on a powerful servicing platform that combines cutting edge technology and outsourcing services to support the specific administrative needs of hedge funds, private equity and real estate investment companies 9.5% rise in net assets of Irish domiciled funds during 2013 Ireland saw a 9.5 percent rise in net assets of Irish domiciled funds during 2013 to reach €1.34 trillion. Largest hedge fund administration centre in the world with over 40% of global hedge funds serviced. Ireland is a leading domicile for cross-border fund distribution with 19%market share. (See statistics page 8)

O n 29 July, the Irish govern- ment made public the bill in- troducing the Irish Collective Asset management Vehicle (ICAV), which is Ireland’s first tailor-made corporate vehicle. The Bill is now due to pass through the next stages of the Irish legislative process and it is anticipated that it will be enacted during the third quarter of 2014. In a speech to the Irish Funds Industry Association conference in Dublin earlier this year, Irish Prime Minister Enda Kenny said: “This legislation will open up the Irish investment fund market to new participants, providing new solutions for managers. It would help to make Ireland’s regulated fund structures the most accessible, inno- vative and sophisticated in the EU”. Ireland is already a European domi- cile of choice for investment funds, and is well-positioned to attract a growing share investment from the world fund industry. THE BENEFITS OF THE ICAV Asset managers can currently use a variety of structures to set up funds service capabilities for traditional and alternative fund structures as well as the new ICAVs.

4 caceis news - No. 39 - September 2014

Supporting Private Equity and Real Estate funds in their international growth

fers them solutions designed to their needs and effective processing of their transactions through a single contact point. PERES team supports clients in all types of private equity activities with a full range of high quality services to suit any structure, strategy and country of investment. Clients benefit from an experienced team with in-depth knowledge of the private equity industry, as well as tailored information systems, in- cluding eFront. Today, among oth- ers, they serve Omnes Capital, a leading name in private equity spe- cialising in financing SMEs, with €2.1 billion of assets under manage- ment for 160 companies and CNP Assurances for their investments in non-listed vehicles. MANAGERS AND INVESTORS CACEIS’s PERES team supports pri- vate equity fund managers throughout the investment life cycle, from initial investment through to exit, from valu- ing portfolio interests through to col- lecting revenues. By delegating day- In July 2013, Luxembourg strength- ened its regulatory framework by introducing a new “carried inter- est” law, enhancing the simple lim- ited partnership structure (Société and Commandite Simple or SCS), and introducing the Special Limited Partnership structure (Société and Commandite Spécial or SCSp) which is directly inspired by the US/UK- style “Limited Partnership”. The new legal framework for both the SCS and SCSp structures permits great- er flexibility while increasing the level of asset security. Furthermore, Luxembourg enables alternative in- vestment fund managers to set up a highly-flexible fund vehicle which is tailored especially for Private Equity and Real Estate investment strategies. This modernised legislative frame- work demonstrates the pragmatic ap- proach the Luxembourg authorities have taken, which is a major strength that has enabled it to be positioned as Europe’s leading financial centre for cross-border funds. The country’s sta- bility and financial strength can also MAIN BENEFITS FOR PRIVATE EQUITY FUND must appoint a depositary either in a European member state or in the country where the fund is domiciled. In illustration a US fund manager, which markets its funds to German investors, has selected CACEIS as its depositary to obtain the necessary regulatory approval for distribution locally. LUXEMBOURG, A LEADING HUB FOR PRIVATE EQUITY AND REAL ESTATE FUND SERVICING

be seen in its AAA rating, its 25-year long history as a domicile and distri- bution hub for Europe’s successful UCITS funds. Luxembourg is also the leading European jurisdiction for Private Equity and Real Rstate fund servicing, with a highly-skilled and multilingual workforce. Our clients benefit from being ser- viced out of the large Luxembourg fund centre, complemented by CACEIS’s long standing experience and teams who know and understand the specific servicing needs of Private Equity and Real Estate funds and managers. A DEDICATED PRIVATE EQUITYAND REAL ESTATE TEAM The PERES team (Private Equity, Real Estate and Securitisation) at CACEIS is fully dedicated to private equity, real estate, Infrastructure and unlisted debt funds, and is made up of specialists based in Germany, France, Luxembourg, Switzerland, Italy, the US and Canada. Across CACEIS, the team manages more than €96 billion of assets under depositary. Having been working in the PERES domain for a considerable number of years, the team has gained a strong experience in servicing a broad range of investment strategies and struc- tures, allowing CACEIS to pro-ac- tively support fund managers. A team, dedicated to the PERES activity, is the contact point for the entire range of services offered to cli- ents, including fund administration, depositary and middle-office servic-

es. This close-knit structure enables CACEIS to provide greater respon- siveness to PERES client needs, as the relationship managers are directly responsible for the entire scope of the fund’s operations. CACEIS provides managers with modular or fully integrated solutions. Our clients benefit from the support of a leading asset servicing company with offices in the most important ju- risdictions, and staff who have a high level of expertise in servicing private equity, real estate, infrastructure and unlisted debt vehicles Creation of Special Limited Partnerships (SCSp) in Luxembourg: 176 Source LPEA CACEISWorld no. 3 in RE fund administration Source: Evestment survey 2014

PASCAL HERNALSTEEN, Head of Private Equiy Real Estate Securitisation, CACEIS, Luxembourg

CACEIS helps private equity and real estate fund managers take advantage of international growth opportunities brought about by the AIFMD P rivate equity and real estate fund management companies operating in a number of European countries generally prefer working with a single depositary operating in key jurisdictions for alternative investment funds. CACEIS, as one of the world’s lead- ing depositary banks, with offices in Europe, America and Asia, pro- vides support to global fund manag-

ers, from the fund’s inception and throughout the fund’s life cycle. A predominant US fundmanager has re- cently awarded CACEIS a depositary mandate for its German, Luxembourg and UK fund ranges, with the objec- tive of expanding the partnership with CACEIS to France and Italy. The AIFMD (Alternative Investment Fund Managers Directive) also stipu- lates that AIFMs as well as AIFs that are domiciled outside the European Union and therefore not directly gov- erned by the AIFMD, must register in an EU member state in order to benefit from the new private place- ment regime in Europe, which comes into force in 2018. Several countries including Germany and Denmark, al- ready require non-EU domiciledAIFs to register with the local regulator to be distributed. Under these regula- tions, AIFs domiciled outside Europe

€ 96 bn in assets under Depositary for PE & RE funds

Business support services customised to Private Equity funds

PORTFOLIO MANAGEMENT ▷ Investment monitoring and reporting ▷ Support for the front office in day-to-day management of investments ▷ Keeping the portfolio of funds in a database shared with the fund manager ▷ Circularisation of registrars ▷ Monitoring tax quotas CASH MANAGEMENT ▷ Opening cash accounts and handling cash instructions ▷ Cash flow forecasts and cash sweeping ▷ Hedging foreign currency transactions ▷ Financing cash flow gaps INVESTOR RELATIONS ▷ Database management ▷ Managing capital calls and distributions ▷ Monitoring commitments ▷ Sending notices of capital calls and distributions ▷ Preparing management reports ▷ Waterfall calculations Private Equity Business support services

With CACEIS, asset managers and institutional investors

benefit from an organisation and

services tailored to private equity funds and their specific needs. B eyond custody, fund admin- istration and depositary bank services, CACEIS’s Private Equity, Real Estate, Securitisation (PERES) department provides busi- ness support services dedicated to real estate and private equity funds and to institutional investors investing in those asset classes. EXPERTS DEDICATED TO PRIVATE EQUITY FUNDS CACEIS’s private equity and insti- tutional clients have welcomed this new organisation structure, which of-

SYLVIANE PIGANIOL, Head of Sales Private Equiy Real Estate Securitisation, CACEIS, France

to-day investment monitoring, cash management and investor relations support to CACEIS, private equity fund managers streamline their op- erations while reducing risk, admin- istrative costs and improving investor communication and relationships. For institutional investors, invest- ments in private equity funds in- creasingly take the form of a regular succession of cash flow dependent on the life cycle of the investments, consequently managing capital calls and distributions is paramount. Other functions are just as essential, such as valuation and look-through of un- listed assets. This meets several aims: obtaining precise information for

investors’accounting and Solvency II compliance and analysing portfolio performance and risks. By provid- ing these services CACEIS makes it easier for clients to diversify their investments. Clients have online access to the data, enabling them to monitor their port- folios and performance on an ongo- ing basis. CACEIS’s PERES business support to private equity funds enables fund managers and institutional investors to meet their needs more effectively in terms of transparency, risk, per- formance and valuation while close- fitting their relationships

No. 39 - September 2014 - caceis news 5

A resurgence in the securitisation market

Interview with Jean-Marc Léger, CEO EuroTitrisation On 27 March, the European Commission recommended reviv- ing securitisation to make it easier for small and medium-sized enter- prises to access the capital markets. Is securitisation about to make a comeback? In a depressed economic environ- ment, the European Commission has effectively proposed reviving securitisation as part of its action plan dated 27 March to ensure the long-term financing of the economy. The European Central Bank (ECB) and the Bank of England (BoE) have also called for greater use of secu- ritisation again in Europe. In terms of outstanding, European securitisa- tion peaked at €2.2 trillion euros in 2009 before falling back to the 2007 level of about €1.5 trillion euros at year-end 2013. The “toxic” label that was often attributed to securiti- sation during the financial crisis was due more to the way this refinancing technique was used rather than to the technique itself. The opacity and complexity of American resecuritisation techniques through 2008 – which were charac- terised by high risks in an unregulated framework – cannot be compared to European practices, which concen- trate on quality underlying assets managed by management companies in compliance with the Alternative Investment Fund Managers (AIFM) directive. Securitisation transforms assets (cor- porate, consumer, mortgage and in- frastructure loans) into liquidity or collateral that banks can use for re- financing with the ECB. Moreover, banks associated with the automobile and retailing industries do not have deposits and use securitisation for refinancing. Companies can also re-

sort to securitisation to mobilise trade receivables. Lastly infrastructure pro- jects are increasingly financed via special purpose vehicles (SPVs). TheAssociation for FinancialMarkets in Europe defines securitisation as an “operation that pools together secu- rities which are then dividend into tranches according to the level of risk”. Securitisation is re-emerging with the new Basel III capital adequa- cy requirements for European banks, although the securitisation of an asset portfolio does not reduce any pruden- tial capital requirements unless there is a significant transfer of credit risk

for underwriting investors. They act as reinsurers or guarantors for a pool of debt. The potential of securitisation in various sectors of the real economy can be illustrated via a few examples of FCTs managed by Eurotitrisation originated by: Renault Credit Investissement (Auto Loans and leases, Dealer Floor plan), Credit Agricole Consumer Finance (con- sumer loans), Carrefour Banque (credit cards), Credit Foncier (resi- dential loans), Rexel or Eiffage (trade receivables) or the conduit Magenta sponsored by Natixis. The development of securitisation in France relies essentially on the FCT, which replaces FCC since the AIFM directive took effect. Will this new legislation have any im- pact on your strategy? Eurotitrisation, a pioneer in securiti- sation and the leading FCT manage- ment company in France since it was created in 1988, is contributing to the revival of securitisation, encouraged notably by the 2 nd  August reform of the insurance code. It enables insti- tutional investors to place up to 5% of their investments in securitisation vehicles. Moreover, French banks created a marketplace company, Euro Secured Notes Issuer (ESNI), which issued €2.65 billion in guar- anteed debt instruments last April, backed by bank loans to companies (SME and midmarket companies). These standardised, liquid securities will be eligible as collateral within the Eurosystem once approved by the ECB, which is expected shortly. Eurotitrisation was selected via a re- quest for proposal to be the manage- ment company for this new vehicle. We could duplicate our role in the ESNI model with other European banks. This fits within our partnership strategy with European originators. The AIFM directive, which took effect on 22 July, strengthens the security of all fund management firms by organising the universe of Alternative Investment Funds (AIF) at the European level. With nearly €1.5 trillion in managed assets, secu- ritisation is an important part of this category. The AIFM directive has Business School, Jean-Marc Léger held various senior positions in banking, particularly at Paribas and CDC. Since June 2001, Jean-Marc Leger is EuroTitrisation's CEO. He acquired a wide experience in FCC setting-up processes covering all types of securitisation. A graduate from ESSEC Jean-Marc Léger

special clauses for securitisation that take into account its specificities. The transposition of the directive into French law presents both an opportu- nity and a challenge for the incum- bent securitisation management com- panies like ours, which manages 180 billion euros of the 220 billion euros in securitised operations outstanding. We see this as an opportunity be- cause through the status of a portfo- lio management company (PMC), we have acquired the same monitor- ing and compliance tools as all fund management companies working for third parties. Granted, we already had strict procedures as part of our opera- tions designed by investment banks and insurance companies, which are rated by several rating agencies and created jointly with depositaries like CACEIS, which monitor us closely. TheAIFM framework officialises this risk monitoring, which we described in detail in our accreditation package which the AMF renewed on 22 July. This new status opens new areas of intervention for managing European securitisation vehicles under French law. We anticipated this develop- ment as of 2008, and we are going to amplify our missions as operat- ing agent of vehicles under foreign law (Luxembourg, Ireland), for which we have an initial experi- ence, and for other jurisdictions in the European Union. We can also become managers of other vehicles

without demanding new accredita- tion but by simply extending our programme of activities. The AIFM directive also represents a challenge because it strengths European competition between management companies. There is no question but that we have the techni- cal strengths to face up to competi- tion. This is why our European de- velopment strategy is highly focused on partnerships where we stand to gain from technical and commercial complementarity. The creation of FCT with CACEIS as depositary has long served to build our reputation. We are ready to share and maximise our com- plementary nature on the European markets by associating our shared drive to provide investors with transparent information on the quality of underlying assets within a secure framework in compliance with regulations be the management company for Euro Secured Notes Issuer (ESNI). Eurotitrisation was selected via a request for proposal to

to a third party. Universal banks are thus able to switch from an “originate to hold” strategy (generate loans that will be held on the balance sheet until maturity) to “originate to distribute” (loans become an immediate source of liquidity for the originating bank). The European authorities are taking measures to ensure that securitisa- tion stimulates the supply of credit for the real economy while reducing the systemic risk presented by banks when financing the economy on their own. This activity has strong growth potential. In this buoyant environment for securitisation, which debt in- struments and categories of un- derlying assets are managed by Eurotitrisation? Eurotitrisation handles all forms of classic and synthetic securitisation instruments. It has 25-years of experi- ence with these products; teams spe- cialising in the statistical analysis and monitoring of debt and related risks, accounting, and cash operations as- sociated with these operations; and powerful computer facilities. With €74 billion broken down into 120 operations, we have 44% of French market share. Assets can be divided into four major underlying catego- ries: corporate loans (CLO-CDO), mortgage-backed securities (RMBS- CMBS), consumer loans (ABS) and infrastructure projects.

European ABS issuance (€bn) 2006 to 2013

2010

2050

Retained ABS

Non retained ABS

800 700 600 500 400 300 200 100 0 900

500 600 700 800 900 400 200 100 300

0

2006

2007

2008

2009

2010

2011

2012

2013

2006 2007 2008 2009 2010 2011 2012 2013

Sources European Central bank

*Population aged 65 and older to population aged 15 to 64

€74bn

with

European Securitisation Outstanding (€tr) Q2 2008 to Q2 2013

broken down into 120 operations, EuroTitrisation has 44% French market share

Retained

Placed

2,5

2,0

1,5

1,0

0,5

0

2008 Q2

2008 Q4

2009 Q2

2009 Q4

2010 Q2

2010 Q4

2011 Q2

2011 Q4

2012 Q2

2012 Q4

2013 Q2

Synthetic securitisation corresponds to risk transfer operations reserved

Sources: AFME/SIFMA Members, AFME, Bloomberg, Dealogic, Thomson Reuters, SIFMA

6 caceis news - No. 39 - September 2014

follow-up page 1

Proven teams and solid infrastructure

manage different files formats and the real time follow-up is becoming even more difficult. To address these issues, CACEIS tailor made services including mid- dle office engineering capabilities, in order to provide clients with a better expertise and cutting-edge IT systems able to manage larger volumes and innovative solutions. From a single account, clients bene- fit from full trades’ integration, fund valuations and custody reporting. This global platform is supported by client teams able to oversee all the middle office and back office opera- tional chain. Clients have access to a full range of services in order to improve risk management, to adjust to regulatory changes and to reduce administra- tive costs. Business Development Managers, backed by expert team, can provide clients with all the necessary infor- mation to assess their operational in- frastructure and offer dedicated pro- file setup in line with their needs

EXECUTION SERVICES ▷ Direct connectivity via FIX to worldwide regulated markets and Multi Trading Facilities. ▷ Futures & options, with the full range of underlyings: Fixed Income, Equities, Indices, Commodities and Forex. ▷ Cash Equities with comprehensive Algorithm libraries (VWAP, TWAP, etc.). ▷ Turnkey white-label solutions. ▷ Best Selection reporting suited to the growing fragmentation of markets, with an increasing regulatory pressure. CLEARING SERVICES ▷ Access to all worldwide Clearing houses for listed derivatives. ▷ Leading technology with robust software suites: CLEARVISION for Middle Office reconciliations with

HUBERT MONTCOUDIOL, Group Head of Prime Fund Solutions, CACEIS and MARC GIANNOCCARO, Head of Operating Line, Prime Fund Solutions, CACEIS

THE ADVANTAGES OF A SINGLE ACCESS POINT

The MiFID II Directive increases “pre trade - post trade” transparen- cy and all these changes will bring many challenges for the buy side, in terms of operational engineer- ing, capital optimisation, counter- party risk’s management, and new administrative costs. CACEIS’s integrated platform is designed to overcome these new challenges. CACEIS is a global clearing mem-

ber of all the European CCPs in- cluding LCH. Clearnet and Eurex Clearing, the two largest European clearing houses for listed deriva- tives and has applied to become OTC Clearing member. Such an integrated offer provides clients with a simplified processing model for listed and OTC derivatives and optimised collateral management services.

By diversifying the number of bro- kers on cash equity, futures and op- tions markets, asset managers gen- erate more complexity in their order flow management, more reconcilia- tion issues, larger margin call com- putations, more cash transfers and different reporting formats. In ad- dition, risk management tools can’t

Clearing houses; UBIX for trade positions and computation of collateral and margin calls.

▷ Integrated Execution management service for verification and payment of broker invoices. ▷ Regulatory Reporting to trade Repositories.

CACEIS helps its clients to optimise their SCR calculation and regulatory reporting before Solvency II comes into effect on 1 January 2016. Solvency II: enhanced look-through reporting

T he Solvency II directive aims to adjust capital requirements to the risks to which insurers, mutual groups and pension funds are exposed at European level. The mar- ket Solvency Capital Requirement (SCR) sets the amount of regulatory capital that these companies must hold for each asset class they invest in. One of the key features of Solvency II is the look-through principle: insur- ers, mutual groups and pension funds must provide a much more granular level of information on each of their investments whether direct or via a fund, including assets held by collec- tive investment vehicles. This will en-

able them to calibrate their SCR cal- culations and report to the regulatory authorities. OVERCOMING THE CHALLENGES OFA LOOK- THROUGHAPPROACH There are several pre-requisites to an effective look-through approach. The first challenge is that portfolio man- agement companies are understand- ably reluctant to disclose full details of their investment style for pooled vehicles, which could push insur- ance companies to invest in dedicated funds or discretionary management mandates. Another problem is that funds of funds put a barrier between the investor and the second level fund manager which makes it difficult to trace the underlying assets. Finally, it is difficult to get con- tract details regarding complex in- struments like OTC derivatives. However, Solvency II requires insur- ance companies to overcome these difficulties and obtain the appropriate data on their underlying investments in order to calculate their SCR, or to use a proxy enabling them to assess the risks. In this case, they could use the fund's benchmark or alternatively aggregate data by risk category (dura- tion, rating, etc.). A SINGLE CONTACT POINT Insurance companies invest in many funds managed by different portfolio management companies, which re- sults in multiple interactions and po- tentially different file formats to ob- tain the look-through data. CACEIS offers its clients a single contact point. Our dedicated teams retrieve full details of client positions and

the underlying assets, and can en- rich them upon request. As Europe's leading fund administrator, we have developed a data warehouse of unri- valled depth, we interface with other valuation agents and we source data, particularly on foreign funds, from specialist providers. CACEIS can therefore meet Solvency II require- ments regardless of the proportion of funds it administers. To facilitate the exchange of information between institutional investors and portfolio management companies, a standard has been created by CACEIS to cap- ture external holdings. If they are not available, we help our clients to de- fine an appropriate proxy. CACEIS has built a look-through ca- pability based on complete, accurate and reliable data. Prior to delivery the service is tested with the client. A quarterly look-through report is swiftly produced to enable our clients to calculate their SCR on a timely ba-

THIBAULT GUÉNÉE, Product Manager, CACEIS

sis, as well as control procedures in the form of reporting. This service which has been in place since 2011 for a broad range of funds, with vari- ous customers among them Crédit Agricole Assurances, successfully meets the challenge of providing standardised data obtained from nu- merous sources. Clients benefit from the advice of our experts, who are able to devise customised solutions, especially for proxies. An actuary experienced in Solvability II, asset/liability man-

agement and investments, presents the technical solution tailored to the needs of each client for the list of col- lective investment vehicles subject to look-through treatment. CACEIS can guarantee a sustainable quality of data as its expertise in this field is recognised by ISO 9001 and ISAE 3402-SSAE16 certification. Clients may also request information for cal- culation of sub-aggregates for market and counterparty SCR by relying on teams with experience in risk indi- cators (Var, stress testing) providing them with customised reports

Thibault Guénée

In April 2014, Thibault joined CACEIS to develop CACEIS’product offering dedicated to Institutional

Funds transparency

Level 0: Asset management portfolio - Level 1: securities held by funds level 0 - Level 2: securities held by funds level 1

clients: Insurers and Pension Funds. Thibault is a Fellow of the French Institute of Actuaries (2000) with CERA certification (2012). Before joining CACEIS, Thibault was senior consultant then director of Life Insurance Business at Towers Watson Paris where he led several projects on Solvency II, M&A, Modelling, MCEV review. He also gained a solid experience in Investment, ALM, Risk Management and Solvency II regulation through 11 years in Insurance Companies: SACRA and Le Conservateur.

FUND 1

FUND 2

FUND 3

FUND 41

Level 0 Level 1 Level 2

FUND 42

FRxx

FUND

FUND 74

FRxx

XSxx

FUND 70

FUND 71

No. 39 - September 2014 - caceis news 7

Discover “Scanning” CACEIS's monthly European Regulatory Watch Newsletter

CACEIS’s Corporate Brochure and Financial Report

I n CACEIS's monthly European Regulatory Watch Newsletter “Scanning”, we provide clients with a snapshot of key regulatory topics facing asset management in Europe to seek out the best way for the investment industry to move forward. To highlight the last plenary session votes of the 2009-2014 European Parliament, we released a special supplement in addition to Scanning No. 1 in June 2014. I hope you find this new edition infor- mative and welcome your feedback on the publication

T he new Corporate Brochure gives an overview of CACEIS’s shareholding and organisation. Key figures show that CACEIS is one of the world’s lead- ing asset servicing providers and is the premier player in the sizeable French market.The publication high- lights the Group’s ability to under- take seamless activity transfers and handle outsourced functions to help clients focus on generating investor value by displaying a set of Product Factsheets. This newmarketing mate- rial describes CACEIS’s comprehen- sive range of added-value services for buy-side and sell-side clients

PDF available on caceis.com

PDF available on caceis.com

The Financial Report contains extracts from CACEIS’s consolidated financial statements and notes certified by legal auditors.

GAELLE KERBOEUF, General Counsel, CACEIS

In the press - Q3 2014

July 2014 Asian Investor “ Chinese firms seenmulling RQFII Ucits bond funds ” David Li, Managing Director, CACEIS Hong Kong

July 2014 L'Agefi Hebdo “ CACEIS is carrying on commercial and diversification efforts ” Eric Derobert, Head of Group Communications and Public Affairs, CACEIS

July 2014

July 2014

Funds Europe “ Ireland Report ” Clara Dunne, Senior Country Officer, CACEIS Dublin Branch

FTFNews “ CACEIS/PwC survey ” Arianna Arzeni, Head of Group Business Development Support, CACEIS

Conferences - Q4 2014

BERLIN

PARIS

30 September 2014 AGEFI AMtech Thibault Guénée, Product Manager, CACEIS Philippe Bourgues, Deputy Managing Director, CACEIS, France 14-15 October 2014

6 November 2014 EVCA Venture Capital Forum

LUXEMBOURG

Custodians and Depositaries “ AIFMD regulatory reporting ”

25-26 November 2014 ALFI-European Alternative Investment Funds Conference

Carine Echelard, Managing Director, CACEIS, France Nathalie Poux-Guillaume, Product Manager, CACEIS

BOSTON

FRANKFURT - 1 October 2014 Paris Fund Industry Forum Holger Sepp, Member of the Management Board of CACEIS in Germany Heike Findeisen, Business Development Director, CACEIS MUNICH - 6-8 October 2014 Fundsforum 2014 (Real Estate) Holger Sepp, Member of the Management Board of CACEIS in Germany FRANKFURT/MUNICH

29 September - 2 October 2014 SIBOS

HONG KONG

4-5 November 2014 ITAS Asia “ Think Global Act Local - Still A Valid

Paradigm In The Evolving FundDistribution Landscape ” Etienne Carmon , Business Development Analyst, CACEIS