Overview - European Fund Distribution

• Recent Numbers of Fund Management Industry in Europe

• Fund Distribution Acronyms in Europe

• UCITS

• UCITS Passport• Notification Process

• Notification Application

• UCITS Share Classes• UCITS KIIDs

Recent Numbers of Fund Management Industry in Europe

• European Fund and Asset Management Association released in January net sales information for UCITS and non-UCITS as at October 2016

• Total net assets of European UCITS funds• Total net assets of 8,428 billions

• Net inflows of 47 billions

Fund Distribution Acronyms in Europe

The landscape of Fund Distribution in Europe is characterised by various acronyms for the applicable European directives on financial services

• UCITS• The Undertakings for Collective Investment in Transferable Securities Directive represents

the main framework for collective investment schemes offered to retail investors.

• AIFMD• The Alternative Investment Fund Managers Directive. Recently introduced framework to

regulate managers of alternative investment schemes offered to professional investors.

• MIFID• The Market in Financial Instruments Directive governs the provision of investment services in

financial instruments by banks and investment firms.

• PRIIPs• The Packaged Retail and Insurance Investment Product regulation introduces a key investor

information document for collective investment schemes and also other packaged investments.

UCITS

• UCITS was introduced in 1985 with the following aims:• Create a single regulatory regime across Europe for collective investment schemes

• Facilitate cross-border fund offering to retail investors

• UCITS is a product directive and governs collective investment schemes, imposing rules in the following areas• Organisation, management and oversight

• Diversification, liquidity and use of leverage

• Cross-border and domestic mergers

• Master-feeder structures

UCITS Passport

• UCITS Directive is a milestone of the free movement of capital within the single market

• Before UCITS existed, managers needed to set-up funds in specific jurisdictions to access local clientele

• The introduction of the UCITS passport allowed for marketing of funds throughout Europe on the basis of authorisation in one domicile

• The undeniable success of the UCITS passport is applied also to similar frameworks in financial services regulation (AIFMD, MIFID etc.)

Notification Process

• At inception the passport notification process was paper based procedure directly with host state regulator

• A regulatory delay of 2 month was required to approve a passport application

• UCITS IV introduced electronic passport procedure

• Passport now is email based process between the Home State competentauthority of the fund and the Host State competent authority

• Within 10 business days from submission of a complete application, the fund isnotified by its Home State competent authority and marketing can commence

• Capital Market Union might make the passport even more streamlined

Notification Process

Version introduced with UCITS IV

Passport application

UCITS Fund

Home State Competent Authority

Host State

Host State

Host State

Notification Application

• Member states regulatory authorities need to publish local information

• Notification letter• Part B and marketing arrangements

• Appointment of third parties (local agents or distributors)

• Notification package• Fund documents and KIIDs

• Translation issues

• Price publication

• Electronic Transmission

• Maintenance of notification• Changes in marketing arrangements

• Documents/KIIDs Updates

• Notices to investors

UCITS Share Classes

UCITS Umbrella Fund

Sub-Fund/Compartment

Sub-Fund/Compartment

Sub-Fund/Compartment

Share Class

Share Class

Share Class

Share Class

Share Class

Share Class

UCITS Share Classes

• ESMA Opinion on UCITS Share Classes

• UCITS Directive defines compartment but has little to no reference to share classes (only in relation to marketing)

• Reasons to set-up share classes• Technical share classes

• Overlay share classes

• ESMA Common Principles on Share Classes• Common investment objective

• Non-contagion

• Pre-determination

• Transparency

UCITS KIIDs

• Introduced with UCITS IV directive in 2011 with grandfathering until 2012 to replace Simplified Prospectus

• Aims of the KIID• Comparability

• Main Requirements• Prepared at share class level but representative share class also allowed

• Two pages or three for structured UCITS (article 36 of Regulation 583/2010)

• Updating• In case of material changes

• At least annually to reflect up to date past performance information within 35 business days from calendar year end

UCITS KIIDs

• Objective and investment policy

• Risk and reward profile• Narrative section describing key risks

• Synthetic risk and reward indicator (SRRI)

• Scale 1 to 7 according to increased level of volatility/risk-reward

• Calculated on historical volatility based on annualised volatility intervals

• Cost and Charges• Costs payable by investor

• Cost borne by the fund

• Ongoing charge

• Performance fee

UCITS KIIDs

• Past Performance• Presented in a bar chart for the last 10 years

• Indicate fees included or excluded from calculation

• Limited value as guide to future performance

• Practical Information• Depositary Bank

• How to obtain fund documents and prices

• Information on master structures

How can we help

• Introduction and selection of service providers

• Project management

• Passport/Private placement marketing authorisations

• KIIDs production

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