A THOROUGH UNDERSTANDING OF PRIVATE EQUITY

RETOUR SOMMAIRE

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - 2010

PERSPECTIVES FOR THE INDUSTRY

(3) On the outsourcing of functions, in particular to offshore entities Outsourcing of certain tasks, in particular custodian and central administration duties and glo- bal outsourcing thereof as regards private equity structures, needs, under the current regula- tory framework, to be discussed with the CSSF on a case by case basis. Such outsourcing may not be facilitated should the draft AIFM directive be implemented in its current form. It currently provides a series of restrictions on delegation and outsourcing that creating significant constraints. For example, delegation of portfolio management activities or of risk management will only be allowed if the outsourced services provider is another AIFM authorised to manage a fund of the same type. Furthermore, no delegation may be given to the depository or the valuation agent, or even, unless certain restrictive conditions are complied with, to an agent domiciled outside the EU. As a consequence, the text could lead to the ineligibility of certain core and non-core services currently possible to delegate. To circumvent this difficulty, mutualised substance solutions could be created for such clients in the vein of Fastnet Luxembourg’s Risk Management and Management Company offer for UCITS clients, which should be adapted accordingly. (4) On the capital and substance requirements As of today, portfolio managers and GPs of private equity funds established under the form of SICAVs are not subject to any capital requirement other than those imposed by Luxembourg laws on commercial companies on the basis of legal form which they have adopted. For exam- ple, if they are established under the form of a limited liability company (“société anonyme”) the minimum capital is set up to € 31,000. Under the AIFM proposal, fund managers will be obliged to maintain own funds. It is worth not- ing that there are no limits on the capital required, which is less stringent than the rule applied to portfolio managers under MIFiD but more so than that applied to management companies under UCITS III. In line with proposal under item (3) above, to keep large private equity fund managers from abandoning the EU as they do not wish or are not in the position to comply with such capital requirements, solutions could be found within Luxembourg’s UCITS III substance offer if ap- propriately tailored to such managers. (5) On cross-border marketing of the private equity funds Currently, the activities of private equity funds established in the European Community are reg- ulated by a combination of national laws and regulations and general provisions of European Community law. Investment managers established in the EU are regulated through the provision of portfolio management services under Article 5 of MIFiD. National and EU rules and general provisions are supplemented in some areas by industry- developed standards. Numerous private equity organisations have established principles and codes of best practice over recent years. As a consequence, private equity funds are sold within the EU under a patch-work of national private placement rules where such rules exist. However, certain countries do not permit investment into non-UCITS funds (such as private eq- uity funds) in their jurisdiction without prior registration with local authorities and compliance with a certain number of national laws.

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