MAKING THE MOST OF UCITS IV

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current investors and distributors – by feeder funds of a master fund do- miciled in a cross-border country could have negative impacts and create a potential investors’ flight risk. In addition, you might have difficulties to maintain a perfect track record. Hence you will have to thoroughly ana- lyse the pros and cons of such a scenario from a marketing view point. In general, investors will certainly prefer directly investing in a master fund rather than in a feeder fund, as the master fund will obviously charge less fees than the feeder.With the KIID offering more transparency to investors regarding charges, it will be hard for distributors to conceal these aspects. However, in some countries of distribution where investors have a stron- ger appetite for local UCITS, setting up local feeder funds could be a real advantage to develop your business. It should be noted that outside EU, you will have to take into account the possible local requirements of the target countries of distribution. For instance, it might be forbidden by local regulation to market feeder funds in the country. In Hong Kong, you will have to register both the master and the feeder funds if you intend to sell a feeder fund, which will of course decrease the benefits of such a set up. Other drivers to consider when defining your target product structure will be cost efficiency, tax, regulatory and legal aspects. You will have to ask yourselves a number of key questions, such as, in the case of a mas- ter-feeder structure: Is it a cost-efficient solution (the two layer structure with the associated set up, governance and operating costs should not be neglected and a real cost/benefit analysis should be performed) ? In which country to domicile the master fund? In which country to domicile the feeder funds? (the choice of law applicable to the agreements will be a key issue and will have to be assessed in accordance with the specific features of the Management Company and/or of the funds).What are the tax risks at investors and portfolio level?What are the tax risks at the Ma- nagement Company level if not located in the country of the UCITS? Etc.

SERVICING STRUCTURE In addition to your product (re-)structuring strategy, you will have to define your servicing structure strategy. It will require the analysis of the diffe- rent scenarios that could bring added-value and efficiency to your whole structure, as well as research into the most appropriate location/choice of providers for fund administration, the depositary function, transfer agency and your Management Company. As an example, in the case of cross-border master-feeder structures, the ap- pointment of different providers for the master fund and the feeder funds may create operational difficulties. However, in that matter you should keep in mind that the transfer agency and fund administration location will depend upon the delegation rules applicable at the Management Company’s level, which might vary from one EU country to another, whereas the fund depositary will necessarily have to be located in the country of domiciliation of the fund. The choice of your cross-border fund administration and transfer agency centre will be crucial to make your project become a success, due to the broad expertise and more sophisticated approach required in a cross-bor- der environment. Furthermore, the use of the European Management Company passport will influence your choice of target financial centre. Indeed, it might be worth thinking about the potential operational efficiencies and cost sa- vings that you could make by relocating your existing domestic Mana- gement Company to another EU country. This analysis should investigate fiscal issues (notably with regard to VAT applicable on management fees), double tax treaties benefits and possible tax exemptions. It should be noted that new tax risks and additional complexity could emerge if the Management Company and the service providers are not located in the country of the UCITS but it should be balanced with the benefits of the increased flexibility gained through a consolidated cross-border management business model.

CACEIS - UCITS IV |  page 11