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TRANSCRIPT
Singapore,
Tuesday, 27th November 2007
Industry Briefing Seminar
hosted by the
Irish Funds Industry Association
Welcome Remarks
» H.E. Richard O’Brien, Ambassador of Ireland to Singapore
» Deirdre Power, Deloitte & Chair, IFIA
Ireland as an International Funds Centre
Seán Páircéir, Brown Brothers Harriman & Vice Chair, IFIA
Tara Doyle, Matheson Ormsby Prentice
Deirdre Power, Deloitte & Chair, IFIA
Gerry Brady, Northern Trust
Background to Ireland
as an International Funds Centre
Seán Páircéir, Brown Brothers Harriman & Vice Chair, IFIA
Ireland – An International Investment Funds Centre
» The fastest growing International Fund Domicile
» Extensive Product Range Available
» UCITS: Undertaking for Collective Investment in Transferable Securities. A European fund passport with a high level of acceptance by Regulators world-wide
» Equity, Bond, Money Market, Multi-Manager, Index Funds, Exchange Traded Funds, Fund of Funds, REITS, Securitised Vehicles
» Non-UCITS : A regulated investment product for Alternative Asset Classes including : » Property, Private Equity, Fund of Funds, Fund of Hedge Funds, Venture Capital Funds» Super QIF Regime – a significant new opportunity» Super QIF Regime – a significant new opportunity
» A “Centre of Excellence” for Fund Servicing» 23 Custodian Banks, 43 Administration Companies
» Supporting Investment Product sponsored by the world’s top Asset Managers and sold into the world’s most significant markets
» Maintaining Competitiveness is a key public policy objective
Dublin’s Quays from the City Centre
Ireland – A substantial and growing fund’s domicile
Funds Administered in Ireland Eur bn
856bn 2005
1,384bn 2007
Product Analysis
IrishDomiciled
UCITS
2006 919bn
Irish Product the Global Context
UCITS Market
6.5 trillionLuxembourg
28%
France
23%
Others
15%Germany 4%
Spain 4%
Italy 5%
Source: Lipper/IFSRA
2000 289bn
2002
2001 390bn
410bn
445bn 2003
564bn 2004
810bn810bn810bn810bn
574bn574bn574bn574bn
Non-Irish
Domiciled
649bn649bn649bn649bn
161bn161bn161bn161bn
Non-UCITS
700bn700bn700bn700bn
Alternative
Investment
Product
Dublin’s Spire on O’Connell Street
Source: EFAMA
23%UK
11%Ireland
10%
Rest
Of
World
70%
Ireland
30%
Source: HFM
Irish Administered Alternative Assets
» European Union and OECD Member State
» Strong Regulatory Environment
» Flexible and Skilled Workforce
» Positive Demographic in population» 40% under 25 years old
» Favourable employment laws
Ireland’s Competitive Advantage
International Financial Services Centre from the Liffey
» Collaborative Industry Environment
» Competitive between institutions» Cost » Product Innovation
» Collaborative for industry initiatives» New industry products» Agreement on legislative changes» The concept of Ireland inc.
» Growth in real demand from investors for flexible investment products
» Irish Tax system is not exported to host countries. Local rules can apply
by jurisdiction
The Irish Legal and Regulatory Environment for
Investment Funds
Tara Doyle, Matheson Ormsby Prentice
» IFSRA
» Types of Irish legal vehicle:
The Irish Legal and Regulatory Environment
» Unit trusts
» Common contractual funds.
» Investment companies
» Classification of Irish Funds
» UCITS» European passport» Global brand
» Non-UCITS
The Irish Legal and Regulatory Environment
» Non-UCITS» Feeder funds
» Types of Non-UCITS Funds
» Retail – no minimum subscription» Professional investor - €125,000 minimum subscription» Qualifying investor - €250,000 minimum subscription
» Marketing of Singapore Funds in Ireland and Europe
» Inward marketing of Singapore funds to Irish investors» UCITS funds of funds – are Singapore funds eligible assets?» Non-UCITS funds of funds and feeder funds
The Irish Legal and Regulatory Environment
» Non-UCITS funds of funds and feeder funds» Prospectus Directive passport» EU private placement regime?
Tax Environment for Irish Investment Funds
Deirdre Power, Deloitte & Chair, IFIA
» Tax benefits of an Irish Fund
» No Irish Tax on Non-resident Investors
» Treaty Access to reduce Withholding Tax
Ireland – A Tax Efficient Location for your Fund
» Tax Transparency of the Common Contractual Fund – “CCF”
» No tax payable by the Irish Fund
» “Gross Roll Up” – legislation permits fund to buy/sell assets & no Irish tax.
» No annual tax on net asset values – e.g. no tax d’abonnement.
Tax Benefits of an Irish Fund
» No Capital taxes – e.g. no tax on issues of shares/units in the fund
» No VAT (sales tax) – recovery possible
» No Irish withholding on Irish source cash flows to a fund
» Reorganisation/Redomicile Reliefs available
- Omnibus declaration of non-resident investors- No Irish Stamp Duty on assets transferred
» Non-Resident declaration on initial subscription – gross payments as a result
» No Irish Income Tax or Capital Gains Tax
» No Irish Gift/Inheritance taxes
No Irish Tax on Non-Resident Investors
- where both parties are either domiciled or ordinarily resident outside of Ireland
In summary, no Irish tax on non-resident investors in Irish Funds.
Tax on investors decided by their home country, not Ireland
» 44 Double Taxation Agreements (and growing)
» Access depends on:
» Fund type
» Particular treaty
» Luxembourg – limited access like Ireland
Treaty Access to reduce Withholding Tax
» Luxembourg – limited access like Ireland
» US/Ireland Double Taxation Treaty
- Recognises Irish funds as treaty residents- Limitation of Benefits clause applies as normal
» Review each country individually
» Alternative Structures for Treaty Access
Irish Fund
(Non-UCITS)
Treaty Access to reduce Withholding Tax
Irish Company
Section 110
Profit participating note
Equity Investments – e.g. Singapore
Access to Irish Tax Treaties
• No Irish tax on CCF
• CCF transparent for Irish tax purposes
• All income and gains arise to investors.
•Investors can be pension funds or
UK Pension Fund
CCF
Dutch Institution
The Tax Transparency of the Common Contractual Fund “CCF”
•Investors can be pension funds or institutions (but no individuals).
• US confirmed transparent status– Very Important
• Transparency should allow investors access to tax treaty reliefs
• Confirmation needed from each jurisdiction on transparency of CCF from an investor and investment perspective
CCF
Investment Manager(s)
Investments
Treaty access
Treaty access
The Administration and Custody of Investment Funds
in Ireland
Gerry Brady, Northern Trust
The Administration and Custody of Investment Funds in Ireland
» Introduction
» ISEQ listing» Servicing centre» Domicile of choice
» Regulation
» Fund vehicle» Fund vehicle» Promoter/investment manager» Administration company» Trustee/custodian company» Management company» Non-Irish funds» ISEQ listing
The Administration and Custody of Investment Funds in Ireland» Fund Administration
» Transfer Agency» NAV production» Financial reporting
» Trustee/Custodial Services
» Fiduciary responsibility» Operational responsibility» Operational responsibility
» Safekeeping» Transaction settlement» Corporate actions
» Additional Services
» Corporate secretarial services» Directors» Tax reporting» Back/middle office» Credit» Securities lending
The Administration and Custody of Investment Funds in Ireland
» Market Characteristics
» 46 licensed administrators» 22 licensed custodians» Mature industry» Staffing resources» Capacity
» Servicing considerations» Servicing considerations
» Transfer agency» AML» Equalisation
» NAV production» Pricing/valuation policy
» Financial reporting» Choice of GAAP
» Fiduciary services» Investment/borrowing constraints
» Custody operations» Contractual settlement
The Administration and Custody of Investment Funds in Ireland
» Conclusion
» Robust servicing industry» Choice» Value» Reputation» Reputation
The Role of the Central Government in the Funds
Industry
George Shaw, Principal, Department of the Taoiseach (Irish Prime Minister)
Department of the Prime Minister (Taoiseach)
» Clearing House Group (CHG)
» Main strategic group located in the Office of the Prime Minister
» Senior Representatives of both the public service and industry
» Chaired by the Secretary General to the Irish Government
» Sets strategic direction for the funds industry following consultation with all relevant stakeholders
Funds Working Group
» Membership includes representatives of Government Departments, State agencies, the Financial Regulator and the industry
» Its role is to ensure that the legal, regulatory and fiscal environment is conducive to the development of the funds industry
» Through close co -operation between the various Government » Through close co -operation between the various Government agencies and the industry, it adds to the breadth of experience available to the funds industry
» Maintains Ireland as a competitive location for the domicile, administration and management of investment funds
Regulatory-Fiscal
» The Funds Working Group acts as a facilitator between industry and the various Government Departments and State Agencies
» Provides the industry direct contact with the Department of Enterprise, Trade and Employment on legislation , the Department of Finance and the Revenue Commissioners on fiscal matters ,and the Financial Regulator on regulatory fiscal matters ,and the Financial Regulator on regulatory matters.
» The Group also has an input through the Tax Strategy Group into the annual Finance Bill.
Education
» Identification of importance of additional education, training and research and upskilling for the further development of the funds industry
» A commitment in the strategy document “Building on Success ” to identify existing and future skills needs and to provide a framework to support the delivery of the associated Success ” to identify existing and future skills needs and to provide a framework to support the delivery of the associated education provision to meet these needs.
» Government study being concluded to identify the current and future skills needs requirement to develop a successful international financial services industry. Action will be taken as a result of its findings.
Coffee Break
Industry Briefing Seminar
hosted by the
Irish Funds Industry Association
Singapore,
Tuesday, 27th November 2007
Introduction to Irish Investment Fund Products
Dan Morrisey, William Fry
» Introduction
» Sophisticated Investor Products
» Retail Products including UCITS
Introduction to Irish Investment Fund Products
» Retail Products including UCITS
» Pooling Products
» Questions and Answers
» Authorisation depends on Investor Classification
– Retail
UCITS
Non UCITS
Introduction to Irish Investment Fund Products
– Sophisticated Investor
» Common Thread – Ireland is a Regulated Domicile→ all Funds benefit from Investor Protection Regime
Professional
Qualifying
Categories of Irish Domiciled Funds by Investment
Strategy
Most Conservative Most Flexible
UCITS Non UCITS ProfessionalInvestor
QualifyingInvestorUCITS Non UCITS Investor Investor
Min. SubEquiv. €125,000
Min. Sub Equiv. €250,000for Investor + Min Net Worth Requirement for Investor
Categories of Irish Domiciled Funds – Growth Trend: Numbers
0
100
200
300
400
500
600
700
800
900
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
-07
Non-UCITS
0
300
600
900
1200
1500
1800
2100
2400
2700
3000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Jun-07
UCITS
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Jun-
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Jun
0
50
100
150
200
250
300
350
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Jun-07
Professional Investor
0
100
200
300
400
500
600
700
800
900
1000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Jun-07
Qualifying Investor
June 2007 Based on Irish Financial Services Regulatory Authority Figures
Categories of Irish Domiciled Funds – Growth Trend
100
200
300
400
500
600
700
800
900
1000
200400600800
10001200140016001800200022002400260028003000
UCITS Non-UCITS Retail
0
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Jun-
07
0200
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Jun-
0
100
200
300
400
500
600
700
800
9001000
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Jun-
07
0
100
200
300
400
500
600
700
800
900
1000
1991
1992
1993
1994- Ni
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Jun-
Professional Investor Qualifying Investor
June 2007 Based on Irish Financial Services Regulatory Authority Figures
Funds Domiciled in Ireland – Breakdown of Assets
under Management – All Categories80.5%
3.9%
2.8%
12.7%
0.2%
UCITS €654 Bn
€ 31.6 Bn Retail Funds
€22.7 Bn Professional Investor Funds
€103.3 Bn Qualifying Investor Funds
€1.3 Bn Non-Designated Funds
Non UCITS: €159 Bn
June 2007 Based on Irish Financial Services Regulatory Authority Figures
» “Barbell Development”
yet
Introduction to Irish Investment Fund Products
» Blurring of Distinction in Product Design
- Sophisticated Product Design Opportunities in UCITS III
Introduction to Irish UCITS Funds
Michael Barr, A&L Goodbody
UCITS - Introduction
» European wide regulated retail fund
» Regulated by home regulators with right to passport into other European jurisdictions
» Well regarded worldwide (not just in Europe)
» Has been developed and up-dated
» Proactive dynamic regulation
» Rules to ensure effective and uniform investor protection covering:
» Supervision of the Fund» Safe-keeping of assets by a third party» Investment limits» Information right for investors» Meaningful diversification
Attractions of a UCITS
» Retail Product
» Also of interest to institutional investors
» Insurance companies;
» Pension funds» Pension funds
» Ability to passport
» International brand recognition
UCITS – Eligible Assets
» Transferable securities
» Money market instruments
» Collective investment schemes
» Derivatives» Derivatives
» Deposits
» Warrants
Each category subject to various classification rules in each case as regards eligibility.
Development of UCITS Eligible Assets
» UCITS III Rules
» Derivatives (ability to use them for investment purposes)
» Fund of funds
» Index funds
» Money market funds
» Latest Irish development – ability to short sell provided it is covered by way of securities lending arrangement
Resulting Developments
» Much increased use of derivatives
» Structured products housed within a UCITS
» 130/30 Funds
» Using a UCITS as an effective institutional product offering
UCITS as a Global Product
» Well respected as a high quality brand
» Footprint in over 50 countries
» Particularly strong in Asia and South America
» 90% of cross border UCITS domiciled in Ireland and Luxembourg
UCITS – the Next Stage
» 2006 White Paper
» Legislative proposal plan for end January 08 – Implementation by end 2008
» Address issue of management company passport
» Framework for cross border fund mergers
» Deal with pooling mechanisms (for example master – feeder structures and virtual pooling)
» Key investor disclosure document (replacement of simplified prospectus)
Sophisticated Investor Products
Kevin O’Connor, Arthur Cox
Qualifying Investor Funds
» Minimum Subscription €250,000 per investor.
» Individual Investor – minimum net worth €1.25m.
» Institutional Investor – owns or invests €25m.
» Qualifying Investor must certify they meet the minimum criteria.
» Exceptions to minimum investment criteria permitted for management/investment management/investment advisory company or a director or senior investment employee of such company.
» All investment and leverage restrictions disapplied.
» Disclose in prospectus investment objectives and policies; borrowing policies; quantitative parameters on extent of leverage.
Qualifying Investor Funds
» Prospectus must include prominent risk warning as to potential for above average risk.
» Investment companies must still comply with risk spreading principle in accordance with Companies Act 1990.
» From 14 February 2007 QIF fund documents no longer submitted to Financial Regulator for review.
» Application Form submitted with final documents and if application is in order authorisation letter issues next day.
Qualifying Investor Funds
next day.
» Promoter and service providers must still be approved.
» Still need Irish administrator and custodian/trustee.
» Possible to appoint a prime broker.
» Very popular vehicle.
» Speed to market critical feature.
» Ideal for hedge funds or other sophisticated products.
Qualifying Investor Funds
Professional Investor Funds
» Minimum subscription €125,000 per investor.
» Exceptions to minimum investment criteria same as for QIFs.
» Derogations from general investment restrictions granted by Financial Regulator on a case by case basis.
» Typically general retail investment restrictions doubled, i.e. PIF may invest up to 20% of NAV in the securities of any one issuer.
» Typically borrowings up to 100% of NAV allowed.
» May appoint a prime broker.
Limited Liquidity Funds
» Hybrid between closed-ended funds and open-ended funds.
» Right to redeem can be deferred/ delayed at the discretion of the Trustees/Directors.
» Limited liquidity funds are not required to list on Irish Stock Exchange as is case for closed-ended funds.
» Useful structure for fund of funds where underlying investments are illiquid due to lock-ups.
Fund of Funds
» Rule for retail funds is that the target funds must be authorised in Ireland or in a jurisdiction with equivalent investor protection.
» PIF (which is a Fund of Funds) may invest up to 20% of its NAV in a target fund but 100% of its assets may of its NAV in a target fund but 100% of its assets may be invested in unregulated funds.
» QIF may invest up to 40% of its NAV in a target fund but 100% of its assets may be invested in unregulated funds.
Pooling Products
Dan Morrisey, William Fry
Feargal O’Reilly, KPMG
What is Pooling?
Entity PoolingPooling which aggregates the assets of participating funds through a separate vehicle (e.g. the CCF)
Virtual PoolingPooling using information technology to aggregate amounts as if they were an underlying pool without actually constituting the pool as a separate vehicle.
What is Asset Pooling?
Existing Investment Structure Asset Pooling Structure
UK Pension Fund
Irish Company
Dutch BV
Swiss Pension Fund
UK Pension Fund
Irish Company
Dutch BV
Swiss Pension Fund
Investments Investments Investments Investments
becomes…Common Contractual Fund
Investments
equals…Economies
of
Scale
What is Virtual Pooling?
Existing Investment Structure Virtual Pooling Structure
UK Pension Fund
Irish Company
Dutch BV
Swiss Pension Fund
UK Pension Fund
Irish Company
Dutch BV
Swiss Pension Fund
Investments Investments Investments Investments
becomes…
Investment Pool
Key Benefits
» Greater access to Investment Managers for what would have been smaller portfolios
» Greater structuring/blending opportunities
» Reduced number of portfolios → Proportionate reduction in volumes of transactionsvolumes of transactions
» Larger Pools → Larger transactions → Lower costs
» Larger Pools → Scale → Lower investment management fees and custody/ administration costs
» Larger Pools → Greater Access to Securities Lending
Common Contractual Fund
» Established under the law of contract by Deed of Constitution (Custodian + Manager)
» Has no separate legal personality of itself – relationship between CCF and investors is a contractual oneand investors is a contractual one
» Investors hold co-ownership rights in assets as tenants in common
» Investor liability limited to amount contributed for units
» Segregated liability between Sub-Funds
Common Contractual Fund – Legal Features
» Established under the law of contract by Deed of Constitution (Custodian + Manager)
» Has no separate legal personality of itself – relationship between CCF and investors is a contractual oneand investors is a contractual one
» Investors hold co-ownership rights in assets as tenants in common
» Investor liability limited to amount contributed for units
» Segregated liability between Sub-Funds
Common Contractual Fund – Regulatory Options
» As a UCITS – UCITS III investment and borrowing restrictions apply
» As a Non-UCITS:» As a Non-UCITS:
» QIF: No investment restrictions imposed
» PIF: Derogations available from standard non-UCITS investment restrictions on a case by case basis
» CCF – available to institutions – not individuals
Asset Pooling
- Why Should You Be Considering It?
Feargal O’Reilly, KPMG Ireland
1. Initial challenges have been met
» A number of asset pooling structures currently exist
» Irish administrators / custodians have invested heavily in and many have developed their systems to facilitate asset pooling
» Legal council have been through the authorisation process» Legal council have been through the authorisation process
» Tax professionals have clarity on transparency
» The Regulator has authorised pooling structures
IN SHORT ASSET POOLING WORKS
Recent CCF examples
» Multinational Pension Funds Nestle, IBM
» Investment Managers Vanguard, Legal & General, Deutsche Bank
2. Withholding Tax Efficiencies
Potential benefits of transparent fund
» Can remove withholding tax drag
» Direct impact on performance
Pooling Vehicles
�
�
1. Cheaper service provider costs
2. Better investment performance
�
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Potential benefit Opaque Transparent
Withholding tax can be a real cost!
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2. Better investment performance
3. Lower regulatory costs
4. Better risk management
5. Tax efficient
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Pooling Vehicles - Opaque
Irish Corporate FundU.K. Pension
Scheme
U.S. Dividends
U.K. Dividends Irish Dividends
Net IncomePaid as Dividend
Only has recourseTo Ireland – U.K. DTA
SchemeDutch Dividends
Withholding tax suffered based on Irish corporate fund and
its ability to obtain reduced WHT
Pooling Vehicles - Transparent
Irish CCF U.K. Pension
U.S. Dividends
U.K. Dividends
Income maintainsCharacter
U.S. Dividends
U.K. Dividends
Withholding tax suffered based on U.K. Pension Scheme and
its ability to obtain reduced WHT
Irish CCF U.K. PensionScheme
U.K. Dividends
Dutch Dividends
Can use U.K. DTANetwork to reduce
or recover withholdingTax suffered
U.K. Dividends
Dutch Dividends
Tax Comfort
» It may not make sense to have every jurisdiction within a Common Contractual Fund (CCF)
» Approx. 90 percent of a typical global index is covered by ten countries
» A large amount of ground work has been completed
Typical Global Equity Index
Germany, 3%
Switzerland, 3%
France, 4%
Australia, 2%Canada, 2%Italy, 2%
The Netherlands, 2%
Japan, 9%
Other, 10%
U.S., 52%
U.K., 11%
Summary of Key Positions
CountryLikely to be Transparent
Likely to be Non Transparent More Work Needed
Australia �
Austria �
Belgium �
Canada �
France �
Germany �Germany �
Italy �
Japan �
Norway �
Spain �
Switzerland �
The Netherlands �
U.K. �
U.S. �
Source: KPMG International, 2007
3. VAT Efficiencies
» VAT normally charged on investment management, administration and other services provided for direct investment
VAT Savings Possible
investment
» Provision of investment management, administration and custody to an “Investment Undertaking” VAT EXEMPT in Ireland
3. VAT Efficiencies (contd.)
» Where services provided from EU jurisdiction to Irish CCF, normally outside scope of VAT in country where service
VAT Savings Possible
in country where service provider established
» Where service received in Ireland by an “Investment Undertaking” VAT EXEMPT
4. Improve Tax Credits
» CCF is not just for limiting withholding tax
» Individuals are the only category of investor prohibited in the CCFprohibited in the CCF
» Potential to provide benefits of pooling and also pass on withholding tax credits to taxable investors
5. Improve Tax Credits (contd.)
U.S. CorporateGerman Corporate Singapore Corporate
Investment
Irish CCFCustodian
InvestmentManager
Administrator
Source: KPMG International, 2007
5. Improve Tax Credits (contd.)
U.S. CorporateGerman Corporate Singapore Corporate
Income Net of WHT
Irish CCFCustodian
InvestmentManager
Administrator
Source: KPMG International, 2007
5. Improve Tax Credits (contd.)
U.S. CorporateGerman Corporate Singapore Corporate
WHT Credit
Irish CCFCustodian
InvestmentManager
Administrator
Source: KPMG International, 2007
6. Asset Pooling Summary
» Reduced operating costs due to economies of scale
» No Irish tax on CCF
» Tax benefits will depend on investors and investments
» CCF transparent for Irish tax purposes and mirrors US regulations » CCF transparent for Irish tax purposes and mirrors US regulations on transparency
» Transparency should allow investors access to tax treaty reliefs
» Investors can be pension funds or institutions
» Ireland offers significant flexibility to manage tax exposures
International Financial Reporting Standards –
Recent Developments & Opportunities
Jonathan O’Connell, PricewaterhouseCoopers
Agenda:
1. Overview of changing IFRS
2. Implications
3. IFRS Convergence
4. How the Irish Industry has dealt with the changes
1. Overview of changing IFRS - Scope
» IFRS continually evolving
» Preparation of dealing NAV unaffected!
» Applies twice per year – half-year and full-year financial statements for investors
1. Overview of changing IFRS - Scope
» Convergence of Irish GAAP with IFRS
» Good progress on acceptance of IFRS in the US
» Two standard setters, but the effect is the same» Two standard setters, but the effect is the same
» Timing of convergence
Financial Reporting Changes - Implications
IFRS FRS
a) Pricing of investments 39 26
b) Treatment of transaction costs 39 26
c) Recognition basis for interest income 39 26c) Recognition basis for interest income 39 26
d) Classification of investors’ capital and of distributions to investors
32 25
e) Determination of functional currency 21 23
f) Risk Disclosures in financial statements 7 29
Financial Reporting Changes – Implications
a) Pricing of investments
» Fair value» Bid prices for long positions» Ask prices for short positions» Valuation techniques where no active market» Valuation techniques where no active market» May impact NAV – difference between trading NAV and
financial statement NAV
(remember- only for financial statements)
Financial Reporting Changes – Implications
b) Treatment of transaction costs
» At present, include in cost, deduct from proceeds
» New – for investments held at fair value expensed immediately
» No impact on NAV – reclassification between captions in income statement if disclosed separately
Financial Reporting Changes – Implications
c) Recognition basis for interest income
» Fixed income funds / money market funds
» Premiums and discounts on purchase of securities
» Most currently amortize on straight line basis» Most currently amortize on straight line basis
» New requirement for effective yield basis
» New requirement consistent with US GAAP
» No impact on NAV – reclassification between captions in
income statement if interest is disclosed separately
Financial Reporting Changes – Implications
d) Classification of investors’ capital and of
distributions to investors
» Conventional treatment – investors’ capital is equity and
distributions to investors are distributions
» IFRS treatment – investors’ capital is debt and distributions
to investors are interest expense
» Both changes are reclassifications – no effect on NAV
» IFIA participated in IASB Discussion on this topic recently
Financial Reporting Changes – Implications
e) Determination of functional currency
» Stricter rules for determining functional currency – which is
currency of measurement
» E.G. raise SGD capital and invest in USD securities – What
is the appropriate functional currency?
» No impact on NAV – reclassification
» Not likely to have a major impact
Financial Reporting Changes – Implications
f) Risk Disclosures in financial statements – IFRS 7
»Disclosures required by the Standard include:
» information on the significance of financial instruments for an entity's financial position and performance.
» information about exposures to risks arising from financial instruments instruments
e.g. Qualitative disclosures in relation to Credit Risk, Liquidity Risk and Market Risks etc.
» and Quantitative disclosures regarding the extent of exposures based on information provided to key management
» Disclosures based on risk management and internal key management information is an important part of the revised Standard
Risk Disclosures in financial statements – IFRS 7
(contd.) Disclosures Include:
» Credit risk
» Liquidity risk
» Market risk
» Market price risk» Interest rate risk» Currency risk
» All of the above disclosures may be a mixture of qualitative and quantitative disclosures and should specify how the specific risks are managed.
»IFIA issued a detailed Guidance Paper on FRS 29 in June 2007
Financial Reporting Changes – Implications Summary
» Most changes are to presentation and disclosure only
» Only change which may affect calculation of NAV is pricing of investments
» Only affects financial statements twice per year – no impact on regular NAV calculation
3 . IFRS Convergence with US GAAP
SFAS No. 157: Fair Value Measurements
»IASB issued Discussion Paper in Nov 2006.
»Starting point for discussion is SFAS 157.
»Exposure Draft expected 2008
4. Financial Reporting Changes
Dealing with the changes
» Perceived difficulties in implementation
» Irish Industry has dealt extremely well with IFRS changes which have impacted in Ireland ahead of the rest of the EU
» Significant IFRS expertise located now in Ireland
Financial Reporting Changes
Dealing with the changes
» IFIA taking a leading and proactive role in dealing with all issues and co-ordinating industry efforts
» Detailed Guidance Paper issued in respect of the practical implications of adopting new Standards – December 2005implications of adopting new Standards – December 2005
» Very positive feedback received from other jurisdictions
» IFIA Technical Committee has worked closely with various Fund Industry Associations in writing to the IASB
How to Establish a Fund in Ireland
Brian Dillon, Dillon Eustace
Various Fund Products in Ireland
UCITS Non-UCITS
Equity Funds Alternative Investment Funds
Bond Funds Property Funds
Money Market Funds Private Equity Funds
Multi-Manager Funds Fund of FundsMulti-Manager Funds Fund of Funds
Common Contractual Funds Fund of Hedge Funds
Index Funds Feeder Funds
Exchange Traded Funds Venture Capital Funds
Fund of Funds
Real Estate Investment Trusts
Securitised Assets
www.financialregulator.ieEntities applying for promoter/investment manager approval need to be regulated by the Monetary Authority of Singapore and to have received a license to provide capital market services under the Securities and
Futures Act.
Non-UCITS
(I) Retail Fund
(II) Professional Investor Fund
(III) Qualifying Investor Fund
UCITS
(i) Retail
» calculation of each fund’s net asset value and dealing price, including the updating/confirmation of the prices of the underlying securities.
» calculation of income and expense accruals.
» all accounting records, i.e. income, expenses, assets and liabilities
Minimum administrative activities in Ireland to be
carried out in Ireland:
(A)
» all accounting records, i.e. income, expenses, assets and liabilities must be maintained in and updated in Ireland. Semi-annual and annual accounts must be prepared in Ireland.
» all detailed reconciliation i.e. stock, custody, register must be performed in Ireland;
» these are important elements of the books and records of a scheme.
» dividends must be issued from Ireland. In addition, the reconciliation of all bank accounts relating to schemes including those relating to dividends must be carried out in Ireland.
» maintenance and servicing of the unitholders’ register including input, alteration and deletion of records. Unitholders’ certificates or their equivalent must be issued in Ireland.
» correspondence to unitholders of the scheme, including completed application forms from investors, any other instructions from investors
Minimum administrative activities in Ireland to be
carried out in Ireland:
(B)
application forms from investors, any other instructions from investors and all dividend/income distributions, must originate from and be retained within Ireland. Unit certificates or their equivalent must be issued in Ireland, as must the processing and issue of redemption requests.
» all the back-up documents underlying the books and records of a scheme must be held in Ireland where they can be audited and, in addition, be subject to inspection by the Financial Regulator. The staff who maintain and prepare these books and records must be located in Ireland.
Fund Documentation
» Prospectus
» Trust Deed/Memorandum and Articles of Association
» Administration Agreement
» Custodian Agreement» Custodian Agreement
» Investment Management Agreement
» Investment Advisory Agreement
» Placing Agreement
» Distribution Agreement; and Prime Brokerage
» A listing increases a funds distribution capacity by accessing a wider investor base. It allows promoters to market the fund (i) to institutional investors who may require a listing on a recognised stock exchange in order to invest and (ii) in countries where the relevant authorities require or provide exemptions for investment
Reasons to list on the ISE
(A)
in listed securities.
» The ISE permits the listing of a wide range of products and structures, and regularly reviews its requirements to encompass new industry developments. The ISE does not prescribe which investment objective or policies a fund may adopt, but instead imposes a framework based on risk spreading and disclosure based on the chosen objectives.
» an ISE listing provides a “stamp of regulation” for funds which may be domiciled in unregulated jurisdictions. The level of scrutiny imposed by the ISE on an initial and ongoing basis provides the market with a significant level of transparency and investor protection. The ISE listing is well recognised as a “meaningful” regime.
Reasons to list on the ISE
(B)
“meaningful” regime.
» an ISE listing carries with it a significant element of prestige and visibility, particularly as Ireland is a member of both the OECD and the EU.
» an ISE listing enables the security to be marked to market, ie. to allow investors to refer to a quoted market price for their securities.
Singapore,
Tuesday, 27th November 2007
Industry Briefing Seminar
hosted by the
Irish Funds Industry Association