TOPSPIN
The magazine of
N. 1
Rory McIlroy
“performance” I love
Dell recommends Windows. Dell thanks very much Alter Domus for its trust and loyalty during all these years of collaboration and wish all the very best for its 10th year anniversary.
The power of a laptop. T he fun of a tablet. Introducing the Dell ™ XPS ™ 12 Ultrabook ™ . Featuring the style and quality our XPS line is known for. Part laptop, part tablet, all performance. Powered by 3rd gen Intel ® Core ™ i7 processor, featuring vivid touch screen HD display. The epitome of form and function. Powered by Windows 8.
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CONTENT 5 EDITORIAL
By Dominique Robyns, Chairman of the Board
6 ALTERNATIVE
The Rise of the Alternative Lenders in the Aftermath of the Global Crisis
8 FOCUS
Alter Domus: From Luxembourg to Asia
10 PERFORMANCE
Rory McIlroy, Holywood Star
13 community
Alter Domus in the community
14 TECHNICAL
Alternative Investment Funds Managers: Are You Ready?
16 REGULATION
Alter Domus is ready for the AIFMD
18 Website O N TOPSPIN 1
The magazine of alterdomus
Editor in chief : Dominique Robyns Contributors : Rosalyn Browne, Maximilien Dambax, Laurent Vanderweyen, Alexandrine Armstrong-Cerfontaine, Mark Vidamour, Benoit Dewar, 360Crossmedia Conception & Coordination: 360Crossmedia ARTISTIC Director: Frank Widling Copyright cover : Š Shutterstock print : 500 copies
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EDITORIAL
Chairman of the Board’s message It is with great pride that we acknowledge and celebrate the tenth anniversary of Alter Domus. Since the inception of Alter Domus, in 2003, we have retained a strong emphasis on supporting the needs and ambitions of our clients and fostering partnerships which thrive and endure. We look forward to the future with confidence knowing that our clients will continue to be well serviced by our dedicated teams of professionals around the world. With the energy and commitment of our employees, as well as the support of the Management team, we are confident that Alter Domus will continue to deliver an exceptional client experience. Thank you to all for your loyalty, trust and support over the past ten years, we look forward to our continued collaboration in the future.
Dominique Robyns
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Chairman of the Board
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The Rise of the Alternative Lenders in the Aftermath of the Global Crisis Written by Maximilien Dambax, Head of Debt, Alter Domus
Since the global financial crisis struck in 2008, financial institutions have faced significant issues with their existing loan portfolios as well as their lending ability. The perceived need for tighter control of the financial industry has led to legislative proceedings, and subsequently to increased regulations that impact financial institutions around the world. As governments and regulatory bodies take action to maintain the integrity of the financial system, this has rapidly led to lenders and their clients in Europe facing a massive funding gap. In addition to debt restructuring and deleveraging that must be addressed, the availability of financing is also of concern. This situation has opened opportunities for alternative debt providers to step into the market as traditional lenders retreat.
Deleveraging Needs With banks suffering substantial losses in their loan books, together with increasing regulatory pressures, it’s no surprise that there is a strong will on their part to reduce their exposure to some specific sector of their lending activity. Indeed, many argue that most banks have not fully recognised their portfolio losses nor sufficiently increased their capital bases. The banking industry is facing a significant refinancing wall over the next few years, with estimates showing €1,7 trillion of debt maturing within the next 2 years. This leads us to conclude that it will take significant time and effort before banks can fully deleverage.
Regulations for the New Era Two sets of regulations are contributing to the difficulties that financial institutions are facing with regard to both deleveraging and dealing with new loan originations and assets allocation:
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• Basel III In 2012, the European Bank Authority announced the first result of the Basel III monitoring exercise showing a shortfall of €128 billion for total capital across 158 banking institutions. To comply with the higher capital ratios, banks face two choices: increase capital or reduce non-core assets. • Solvency II Directive In the insurance sector, the European Union has put measures in place to clarify the link between capital reserves and the associated risk for each invested asset class. According to the Directive, the capital charge for a direct property investment will be 25% versus 49% for private equity, 39% for listed equities, and 0% for EU government bonds. It is still under review whether lending will fall under the category of “corporate unrated bonds”. In that context, lending activity might look to be an attractive investment for insurance companies.
Financing Sources for the New Era Significant impending refinancing needs and more restrictive regulations on financial institutions are just part of the overall economic picture. In the current environment from a risk adjusted and performance perspective, debt is increasingly seen as a strong alternative to fixed-income products and direct real estate or private equity investments.
Alternative
As a result, alternative asset managers, insurance companies, and pension funds have been prompted to look at the lending market more closely. One example of this is the number of newly established debt funds targeting senior debt or the more opportunistic returns by investing in mezzanine debt and distressed loans. Less commonly understood as a financing source in Europe are insurance companies. As a result of the potential favourable capital charge treatment, an appealing risk/return profile and asset diversification needs, insurance companies are now coming to the table as lenders. Pension funds too are increasingly drawn to the potentially higher returns available through the lending market.
New Global Trend Given that the entire banking system is focused on reducing its exposure to debt, financing via such non-banking institutions would seem to be a global trend that will last for many years to come. Clearly, non-bank lending activity in Europe will face many challenges around legal, regulatory and existing tax frameworks, which can differ from one country to another with potential banking licence issues to be addressed. To date, the European Commission has not focused its attention on supervision of the non-bank lending market but a recent green paper on shadow banking suggests that it is keen to analyse in detail the issues and challenges around this.
Maximilien Dambax
Š DR
In summary, new regulations, as well as broader economic conditions, are bringing alternative lenders to the fore in the lending market. However, whether these new players will be able to totally fill the funding gap is still unclear. Certainly, the future of the financing landscape will be influenced by their presence. While there are still many details to be worked out, given the scale of financing needs and investor opportunities and appetite, we can expect lending by non-bank financial institutions to be a trend for many years to come.
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O
Laurent Vanderweyen
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FoCUS
Alter Domus: From Luxembourg to Asia Laurent Vanderweyen, CEO Alter Domus
Alter Domus is a leading global provider of Corporate and Fund Services, dedicated to private equity houses, real estate firms, multinationals and private clients. The firm’s vertical integrated approach offers tailor-made administration solutions across the entire value chain of investment structures, from fund level down to local Special Purpose Vehicles. Origins An expansive network of double-taxation treaties and the early implementation of the European Union’s directives have propelled the growth of Luxembourg’s financial sector, making it one of Europe’s most conductive environments for companies to locate their businesses. Luxembourg has also developed into the largest investment fund centre in Europe. “Within our industry both our private equity and our real estate clients require a depth of expertise that we can offer to serve their complex requirements. However, as fund structures and the legislative and regulatory environments become even more complex the ability of a service provider to operate across a wide spectrum of countries and services is becoming increasingly more important”, says Laurent Vanderweyen, CEO of Alter Domus and Head of Funds.
Truly independent Alter Domus prides itself on being independent from banks, lawyers, private equity houses and other advisers, allowing the company to focus on the needs of its clients. Founded in Luxembourg 10 years ago, Alter Domus has continually expanded its global service offer and today counts 28 offices and desks across four continents. This international network enables clients to benefit globally from the expertise of more than 600 experienced professionals active in fund administration, corporate secretarial, accounting, consolidation, tax and legal compliance and debt administration services. Alter Domus is proud to serve 11 of the 20 largest private equity houses and 12 of the 30 largest real estate firms in the world. Since its inception in 2003, Alter Domus has developed a robust international presence. With an unparalleled commitment to
providing comprehensive and integrated services to our clients with global business interests, the firm offers outsourcing solutions for middle and back-offices, including accounting, tax, regulatory and compliance requirements of legal structures established by our clients in each of the jurisdictions in which we operate.
Where our clients want us to be Alter Domus continues to follow their clients and be located in the places that our clients choose to be. Currently and moving forward in the future key strategic markets for us continue to be the US and UK and additional EU markets where we hope to further expand our presence. Investment managers are increasingly seeking investment opportunities in the debt market, varying from investment in corporate loans to opportunistic investment in distressed assets in the Real Estate and Private Equity markets. Their objective is to provide investors, including pension funds and insurance companies, with optimal returns in a low yield and challenging economic environment. Alter Domus has recently announced that it is is launching a depositary service to support its clients in meeting a new requirement for funds captured under the AIFM Directive to appoint an independent depositary. “It is a natural evolution of the Alter Domus product offering that allows us to offer a complete solution for Private Equity and Real Estate Structures. We assist our clients by providing them a vertically integrated approach, from the outsourced fund administration to then management of local companies, including also now the depositary function” concludes Vanderweyen.
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© PHOTOS: NIKE
O
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PERFORMANCE
Rory McIlroy,
HOLYWOOD STAR
There may be just one ‘L’ in the name of the champion’s home town, but his success has surpassed that of many American actors. Flashback.
A child prodigy Being born in Holywood, the Northern Irish town that shares almost the same name as the famous district of Los Angeles, is no guarantee of a fast-track route to stardom. The brief list of celebrities hailing from this little city in the west of Ulster consists of just a few lesser-known local heroes, with one notable exception: Rory McIlroy. In the space of just a few years, this young man, now approaching his twenty-fourth birthday, has risen from promising hopeful to global superstar. He is now top of the billing in golf, a sport he started playing at just two years old, under his father’s tuition. Now embarking on his second year as world number one, “Rors” already has ten pro wins to his credit, including two Majors, and not forgetting two Ryder Cups. Just a few highlights from a CV that very few professional golfers can rival...
The inevitable comparison However remarkable his glittering rise to the top of his chosen sport may be, it is McIlroy’s personal qualities that have struck a particular chord with fans. In golfing circles, comparisons with Tiger Woods are inevitable as soon as any young player achieves
a series of wins...often followed quickly by disappointment. This has been far from the case for the Northern Irish golfer, who continues to happily follow in the - giant - footsteps of his famous predecessor. His personal touch adds liking to the admiration he naturally inspires. Where Tiger was cold and calculating, Rory is warm and spontaneous. Where Tiger was surrounded by bodyguards, Rory is available for his fans. Where Tiger kept his cards close to his chest, Rory is rarely at a loss for words.
Adapting to fame However, since stealing the spotlight from Woods, the naive and enthusiastic teenager has matured into a more reflective young man. Constantly under the glare of the world media, Rory has obviously had to learn to be a little more wary. And this necessary transition of adjusting to fame has not always been a smooth one: while the businessman has secured his financial future through an attractive contract with a famous equipment manufacturer, the golfer’s fortunes seem to have fallen a little at the start of this season, with two early eliminations in his first two appearances. Let’s hope that this is simply a new twist in the plot, designed to keep us in suspense in 2013, a year that looks set to be an exciting one, in pure Holywood style...
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Leading global provider of tailor-made administration solutions Fund Services – Corporate Services Thank you to all our clients and business partners for their loyalty, trust and support over the past ten years. We look forward to our continued collaboration in the future. The Netherlands
Singapore
Belgium New York Luxembourg
Cyprus
United Kingdom
Hong Kong
Malta Ireland Jersey Mauritius China Guernsey
a lte rd o m u s .co m
© DR
community
In 2012, Alter Domus decided to sponsor a “Renault Twizy” for the use of the Unity Foundation Luxembourg. The NGO was able to enjoy one of the first Twizys to be registered in Luxembourg. Presented in its definitive form at the Paris Motor Show in 2010, Renault Twizy was designed from the outset as an ultramobile all-electric two-seater vehicle (TWIN and EASY). The Unity Foundation was created in Luxembourg in 1980, and in 1991 it was
officially recognised by the Ministry of Foreign Affairs as a Non-Governmental Organization (NGO). Its mission is to promote the access to education for all and it is been instrumental in implementing many education projects around the world including Africa, Latin America and Asia. The Unity Foundation was pleased to have the use again of the Alter domus Twizy during the organisation of a “Street Festival” on the occasion of 8th edition of
© DR
Alter Domus in the community the ING Marathon on June 8, 2013. Congratulations also to all of our staff who again participated in the event. Around 35 Alter Domus employees took part in the half marathon and Team Race and it was great to see the Alter Domus colours being recognised by so many people throughout the race.
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Alternative Investment Funds Managers: Are You Ready?
Written by Alexandrine Armstrong-Cerfontaine, Managing Partner of SJ Berwin’s Luxembourg office.
The Bill concerning the AIFMD (Alternative Investment Fund Managers Directive) is due to come into force in July, 2013. This article aims to clarify the Luxembourg regulatory framework defining substance requirements for management companies, with an insight on likely changes and practical steps to be acknowledged by managers to exploit the full potential of the transposition of the AIFMD in Luxembourg. Given the very broad definition of AIFs under the Bill, it is likely that fund managers will be caught out by the reform as the number of exceptions under the AIFMD is limited.
A classic approach to substance Luxembourg domestic law stipulates that a management company is considered as a Luxembourg resident if its statutory seat or its place of effective management is in Luxembourg. It is impossible to say today with certainty what the detailed requirements for AIFMs in Luxembourg will entail in order for the Commission de Surveillance du Secteur Financier (CSSF), the Luxembourg regulatory authority, to approve a management company and to what extent it may delegate its functions to third parties. That being said it is however relatively easy to guess that the core principles that will be applied by the CSSF and the shape of the future of management companies handling UCITS funds and AIFMs should look very much the same as before. A management company must seek authorisation as an AIFM if it performs either of the two functions of portfolio management or risk management for an AIF. Consequently, particular attention should be given by the CSSF to the AIFM’s substance, i.e., its actual physical and economic presence in Luxembourg when designing organisational and operational requirements for AIFMs.
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What does this mean for governance? Governance requirements strengthen investor protection and are two-fold. It is expected that the shareholders of AIFMs will have to prove honesty, integrity and transparency, as well as sufficient financial solidity for ensuring the company’s longterm equity needs. It is also likely that potential conflict of interests will have to be tackled when authorisation is requested from the CSSF. The CSSF is expected to seek information from applicants for authorisation with regards to effective management and at least half of the board of directors of the AIFM must be directors residing in Luxembourg or working from Luxembourg. Furthermore, the premises of the management company will be, in addition to the decision-making centre, an administrative centre, with permanent compliance and risk control functions and also include an IT centre.
What can you delegate? The delegation of functions for the operating parts of the management company is simply expected to reflect the terms of the AIFMD, as opposed to other jurisdictions where the standards set out by the AIFMD are considered as a minimum core on which to base rules on the decision-making processing and the organisational structure of the AIFM. The activities of an AIFM include portfolio management and risk management for the fund and these activities can be performed
© SHUTTERSTOCK
Technical
under a delegation arrangement with licensed asset managers or managers with regulatory approval within the EU or, in the case of a non-EU delegate, a delegate with regulatory supervision and co-operation agreements in place with Luxembourg. The activities of an AIFM may go much beyond these two core functions and include a vast array of other functions, and these activities could be delegated as the AIFM may deem appropriate. AIFM’s are without limitation in Luxembourg as to what they may choose to delegate, provided that delegation does not render the AIFM a “letter-box” entity. This limitation to delegation implies that the CSSF will verify that the AIFM remains responsible for its activities and supervises its delegates.
Luxembourg’s pragmatism prevails The regulatory framework on the substance of AIFMs based in Luxembourg is expected to adopt a sound and pragmatic approach to delegation in line with the AIFMD, both by the full transposition of the European directive into Luxembourg law
and the resolute attitude of the Luxembourg regulator on substance. The Luxembourg local accent on flexibility in terms of potential exemptions and delegations to which the industry is used should remain, leaving sufficient scope for the development of funds and competitiveness of the financial arena. Therefore, it is expected that AIFMs in Luxembourg will be able to optimise business functions and processes, save costs and use expertise in risk, administration and/or specific markets or investments. The absence of the “letter box” test should be carried out by a Luxembourg AIFM if the decision making centre remains in Luxembourg, i.e., management of the AIFM has the skills and resources to supervise delegated tasks effectively. Now is the time for managers to identify if delegation would add value to their operations and assess which service providers will be best placed to achieve their goals, as delegates will have to have an appropriate organisational structure and personnel with the necessary skills and expertise in the relevant functions considered for delegation.
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Alter Domus is ready for the AIFMD Written by Mark Vidamour, Director Alter Domus Guernsey and Benoit Dewar , Deputy Chairman, Alter Domus Depositary Services
The Alternative Investment Fund Managers Directive (AIFMD) will be transposed into law by 22 July 2013 and Alter Domus is more than ready to assist its clients through the challenges of the Directive. The new Depositary service offered by Alter Domus, as well as the advantageous location of the Channel Islands provides a complete and enhanced solution for our clients. Alter Domus as Depositary As foreseen by the AIFM Directive the depositary will have three main responsibilities; the safekeeping of assets, monitoring significant cash flows through the structure and overseeing the main processes. While the safekeeping of assets is historically the core function of the depositary, in jurisdictions where this already exists, the Directive also highlights two other functions and considerably enhances the importance of the depositary. Often seen as a passive stakeholder up to now, these new functions force the depositary to become a central hub of communication throughout the fund structure, this new role requires depositaries to develop a comprehensive understanding of the industry as well as a deep knowledge of their clients’ business model. Whereas in the mutual funds or hedge funds world, fund administration and depositary processes are more independent, it is worth noting that fund administrators in private equity funds act as the main coordination hub for all relevant aspects, including accounting, legal documentation, payment processing and investor servicing. As such, they easily handle 80 percent of the information and documentation required for the depositary to execute its duties effectively. Therefore, a strong cooperation between the fund administrator and depositary is certainly a key success factor.
Š DR
Marc Vidamour, Director Alter Domus
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Based on the two points mentioned above, Alter Domus will be offering Depositary Services in Luxembourg and expects to be in the first wave of regulatory approvals. Alter Domus is launching a depositary service to support its clients in meeting a new
REGULATION
requirement for funds captured under the AIFM Directive to appoint an independent depositary. We will leverage this experience to provide such services in other relevant countries and is considering the legislation and guidance as it is published with this regard. Alter Domus is gearing up to launch its depositary service in the United Kingdom with a seminar planned on July 17 in central London.
At the end of May, 2013 the European Securities and Markets Authority (ESMA) approved a cooperation agreement with Jersey and Guernsey to ensure it can continue to deliver alternative investment funds business into Europe after the introduction of the EU Alternative Investment Fund Managers Directive (AIFMD) in July. The agreement enables alternative investment fund managers using Jersey to continue to market into Europe through private placement rules until at least 2018. In April 2013, specific regulations mirroring AIFMD criteria were introduced in Jersey and are expected to be introduced in Guernsey by July, to ensure it would comply where relevant with all criteria set out in the AIFMD. The regulations also pave the way for the creation of a European-wide passport regime for alternative investment funds in anticipation of July 2015 when European-wide marketing passports will potentially become available to non-EU Alternative Investment Fund Managers.
Benoit Dewar, Deputy Chairman, Alter Domus Depositary Services
into force in July, but it will also offer a welcome degree of flexibility in offering a completely separate regime for fund managers wishing to market to non-EEA countries. The agreement comes into force on 22 July 2013.
Alter Domus in the Channel Islands As a non EU jurisdiction, alongside an AIFMD-compliant regime, Jersey and Guernsey can also continue to offer fund managers a separate regime that lies outside the scope of the AIFMD for managers wishing to market to outside of the EU. This will mean that the Jersey and Guernsey approach to the Directive will not only offer a seamless transition when it comes
In both Jersey and Guernsey Alter Domus is regulated to provide fund administration and corporate services to funds and their associated entities, both compliant and non-compliant with AIFMD. Alter Domus will also, subject to the release of the final regulations, be able to provide Depositary services to alternative asset funds.
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Alter Domus, Channel Islands a good alternative
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