The Bottom Line 1 by 360Crossmedia 360Crossmedia

The Bottom Line The fund data & document magazine by KNEIP #1

> 06 FOCUS Solvency II > 14 STORY EU rules bring fresh challenges > 16 INSIGHT Art in the workplace

Outsourcing vs Insourcing Charles Maes â&#x20AC;&#x201C; Schroders Investment management Luxembourg p10

Providing digital marketing & reporting tools to help fund managers attract and retain investor assets

Fund Tools www.kurtosys.com

Fund Factsheets

Beautiful factsheet production. Unrivalled flexibility and significant reductions in cost, risk and effort.

Embed interactive technology into your website and give your users control over charts and analytical web tools.

Youâ&#x20AC;&#x2122;re in good company

Read our recently published white paper Best Practices in Fund Factsheet Production: Work smarter not harder Includes the nine ways that outsourcing can improve factsheet production. Go to www.kur.to/kneip to download your copy

Get in touch LONDON

NEW YORK

Tel: +44 (0)20 8605 9770

Tel: +1 (646) 380 3877

paul.fawcett@kurtosys.com

adam.drexler@kurtosys.com

Table of Contents EDITORIAL

FOCUS

Solvency II

AIFMD reporting EU rules bring fresh challenges for alternative managers

LONG STORY

Data management

Outsourcing vs Insourcing

New regulation builds pressure on fund managers

INSIGHT 16 Art in the workplace

WEBSITE 18 NETWORKING 19

Networking in Luxembourg

ÂŠ DR

The fund data & document magazine by KNEIP Chief Editorial Officer: Bob Kneip Editorial staff: Patricia Fonseca, Charles Maes, Lee Godfrey, Mario Mantrisi, Fabrice Sauzeau, Kristof Wouters, Troy Bankhead, 360Crossmedia Conception & coordination: 360Crossmedia Artistic Director: Tom Norest Cover photo: 360Crossmedia/C.O Print run: 500 copies Date: June 2013

SNAPSHOT

20 YEars

fiLing to aLL

of UPHoLDing stanDarDs anD BUiLDing trUst

rEgULators

12.4 M Data Points DELivErED EvErY MontH

+ 100

kiiD cLiEnts

420

fUnD coMPaniEs sErvED WorLDWiDE

As we mark our 20th year of business, we look back on two decades of upholding the fund industry’s standards and building trust with our clients, and the industry as a whole. © DR

Looking forward to the next 20 years, we hope to continue listening to our clients’ needs, and building on our reputation as the reference for the production and disclosure of legal, regulatory, and contractual

information for the fund industry.

EDITORIAL

Dear FRIENDS, You will read in this magazine articles written by talented experts and learn about the last trends in our industry. This magazine belongs to you! We would like to encourage you to participate in its content: we appreciate your expertise and would like to share it with the readers on the pages of our next edition. Wishing you a pleasant reading of this magazine.

ÂŠ 360Crossmedia/J.M

Bob Kneip

FOCUS By Kristof Woutters & Fabrice Sauzeau Dexia Asset Management

Solvency II:

A growing pressure on asset managers despite political uncertainties Whereas the actual Solvency II capital requirements are still uncertain, the ever increasing focus on governance and transparency boosts the needs for highquality and extremely detailed reporting.

The regulator (EIOPA) activity on Solvency II implementation contrasts with the apparent political stalemate In addition to the QIS for long term guarantees, EIOPA recently launched a series of consultations on preparing for Solvency II. In the same time, other parties keep on questioning the relevance of market valuation and the usefulness of such a complex and stringent European regulation. All this turns into a sliding timetable. Since January 2012, the vote of Omnibus II has been delayed six times. Meanwhile, the expected year when insurers should comply with the new solvency capital requirement is pushed back to 2016, likely with transitional periods of up to 7 years. Everyone, including asset managers, have to adapt to a very demanding and constantly changing framework.

Most of the resources were initially spent on capital requirements quantification Considering the importance of market risk on balance sheets, asset managers have accompanied their clients to reshape portfolios and strategies to be more in line with Solvency II requirements. Specialist asset managers have spent a lot of time analysing and designing dynamic liabilities hedging solutions, asset

allocation strategies with inclusion of the capital consumption, introducing for instance more efficient equity exposure through derivatives or “return on capital” criteria for bonds picking. However the current calibration of capital requirement is rightly blamed for short termism and an adjusted version for insurers carrying long-term illiquid liabilities is now foreseen. New needs and challenges are thus arising.

Regulatory expectations for reporting have stabilised, but some questions remain open While first pillar requirements are still uncertain, transparency and risk assessment remain core principles of Solvency II. Reporting is therefore a strategic issue and turns out to be the main client focus. In July 2012, EIOPA released finalised templates demanding extensive requirements. As everyone knows, reporting comes with two main challenges: the quality and the diffusion of data. The biggest cost to date for asset managers is linked to data recuperation, cleansing and distribution. However the final cost is unclear so far as everyone,–including data providers,– is still working on his business model regarding Solvency II. And since the Solvency II framework is ever evolving, nobody knows what the true cost will be. All we can say is that it will be massive.

Transparency and risk assessment remain core principles of Solvency II

ÂŠ DR

Kristof Woutters

AIFMD reporting By Mario Mantrisi - Kneip

EU rules bring fresh challenges for alternative managers The EU’s AIFM Directive, which takes effect on July 22, seeks to create more transparency around the alternative fund industry by imposing new requirements on managers regarding reporting to investors and regulators. New life for the management passport? While the provision under the UCITS IV legislation enabling management companies to apply for a management passport has been little used, that may not be the case following the introduction on July 22 of the Alternative Investment Fund Managers Directive. With EU managers no longer able to distribute alternative funds through national private placement rules, a Luxembourg-based manager that also runs funds domiciled in France and Germany could theoretically have to establish a management company in both of those countries, since the directive bars outsourcing of both portfolio management and risk management. This would be a costly outcome, requiring the manager to establish offices, gain authorisation and hire staff in all the countries where products are domiciled–and some managers have established funds in as many as 10 EU jurisdictions. This makes the AIFMD management company passport a more attractive approach for EU groups, prompting them to rethink their distribution strategy and consider establishing a single centralised management company for all their funds.

Detailed disclosures The directive requires managers to publish an annual report for each fund it markets within the EU within six months of the end of the financial year. In addition to financial statements, a report on activities and details of any changes, it must include detailed disclosures on remuneration of staff whose work affects funds’ risk profile, including a breakdown on fixed salaries and variable bonuses. In addition, the European Securities and Markets Authority is pressing for a standardised reporting timeframe starting with the period from July 23 to December 31 this year, which means that managers need a solution to collect data in place immediately. The challenge in these reporting obligations is less the generation of reports, which are expected to follow a standardised format, but collection of data from many disparate sources including administrators, custodians, asset managers and management companies, at different times and through different systems. All of the data must then be checked and validated, which is why KNEIP has designed its system to maximise visibility for clients, including visualisation at various levels from high level down to individual data fields, and ease management of the report production process.

Uncertainty over delivery Once produced, reports must be delivered to regulators as well as investors, but there’s still widespread uncertainty about how. Of the five main European markets, only in France has the regulators indicated the delivery method. The other four regulators have yet to reveal their requirements, but except in the UK, it is unlikely to be carried out through e-mail. Luxembourg is likely to opt for Sophie or e-file, while Ireland and Germany may use their own online platforms. These details are crucial, because all the time and effort involved in creating reports will count for nothing if their delivery is not well managed.

The real challenge in these reporting obligations lies in collecting data from many disparate sources

ÂŠ DR

Mario Mantrisi

LONG STORY

Outsourcing vs Insourcing:

The problems with interpretation of UCITS IV will improve within a couple of years

ÂŠ 360Crossmedia/C.O

Charles Maes, head of document management at Schroders Investment Management Luxembourg

LONG STORY Charles Maes, head of document management at Schroders Investment Management Luxembourg, discusses the firm’s experience in insourcing its cross-border Fund registration under UCITS IV.

How has the change in notification procedure under UCITS IV affected you? We went from a system that required us to work with lawyers in each jurisdiction to one where a single partner, Kneip, covers multiple jurisdictions. In the past our funds were not always registered for sale immediately in all jurisdictions, because the procedure could take several months in certain countries, but this does not happen anymore. Now registration is possible pre-launch. How easy was the shift from a completely internal solution to outsourcing everything? We launched a request for proposal in January 2012 and went live in May, despite delays due to the coordination work required with various law firms. Working with Kneip made the adaptation easier as they already create our publications and have hold a lot of our related data. Compared with 2011, our costs have fallen by approximately 30 per cent, even including Kneip’s fees. Meanwhile the whole process is easier and faster. What challenges did you encounter? It was a completely new experience for us, as in the past we never had to deal with fund registration directly. We also had to adapt to more demanding circumstances – Schroders has a culture of effective execution, such that once an idea has been articulated, we like to proceed as rapidly as possible from the launch of a project to its implementation. One thing we do appreciate is the help we received from the CSSF. Normally the Regulator

just has to say yes or no to a new fund, but they provided guidance and have been very supportive when we encountered difficulties early on in the process. For example, Bulgaria requires an initial notification for each new share class. This is an unusual interpretation of UCITS IV, since normally new classes are notified directly to the host regulator, but the CSSF agreed to accept an initial notification for the Bulgarian Regulator to facilitate the process. Does UCITS IV simplify the notification process in the way it promised? The rationale behind UCITS IV is excellent. The use of technology has reduced time and costs. The registration process under UCITs IV is still in its infancy with some teething problems due to different interpretations in member states, but we expect further improvements as Regulators become more familiar with the process and working practices converge. What developments are you looking for in the future? We are looking to extend our collaboration with Kneip and hope their system will soon support countries such as Switzerland, Gibraltar and the ability to register non-Luxembourg domiciled funds such as our UK Fund range. We also need to transfer the Cifradoc card from Spain to Luxembourg. Schroders and Kneip have developed a technology partnership relationship in which we identify our particular needs and they develop solutions to meet them. That partnership already existed, but since 2012 it has gone from strength to strength.

We have re-engineered our fund filing process in the EU reducing the time to register funds in member states by several months and reduced the costs by more than 30 per cent since 2011. ÂŠ 360Crossmedia/C.O

Charles Maes

Data management BY LEE GODFREY – KNEIP

New regulation builds pressure on fund managers With fund managers already required to maintain and publish an increasing range and frequency of data, and the AIFM Directive about to load on more responsibilities, a robust and centralised data management solution is more critical than ever. Taking ownership Just a couple of years after UCITS IV and the KIID brought new burden on fund managers regarding the maintenance, storage and dissemination of data and documents, the EU’s AIFM Directive is poised to do the same in the alternative investment field. Regulation is a major source of the pressure steadily building on managers to generate and distribute more information, more quickly, more frequently, to an increasing number of channels, and with less tolerance for inaccuracy and omissions. Managers increasingly understand that data management is no longer a peripheral or optional task but an area over which they need to establish ownership and create a centralised and proactive process, whether carried out in-house or by a third-party provider.

The importance of dematerialisation Dematerialisation of data is a crucial element. It’s inefficient, costly and prone to duplicated effort when data vendors, distributors and others are obliged to trawl for information from documentation such as annual reports, fact sheets and prospectuses. The re-transcribing of information also makes the process prone to error, leading in turn to further costly ad-hoc correction procedures. That makes dematerialising data less expensive in the long run while reducing risks to its integrity.

Noise Inaccurate or missing data will impact numerous departments within an asset manager and cause unnecessary “noise” throughout the organisation. Sales teams will waste valuable face-time with clients discussing data discrepancies, operations will be bombarded with requests to update or complete data, call centres will receive calls from customer querying differences between their preferred data sources. All of this will distract management and staff away from core functions.

Setting priorities Fund managers often have to deal with data demands generated by tens of fund products and hundreds of share classes. Adding to this the multitude of dissemination requests makes it vital for organisations to prioritise the most important channels. Not every solicitation for data is critical to the business of a fund manager or the informational needs of its investors. It’s important to determine where timely and accurate data provision is legally essential or vital to end-clients – and where it’s not. Ultimately total control of all data channels is not feasible for a fund manager. The goal must be to ensure the data management operates with the maximum efficiency and accuracy, and that its dissemination is targeted according to the organisation’s core needs.

Managers increasingly understand that data management is no longer a peripheral or optional task

ÂŠ DR

Lee Godfrey

insight

Art in the workplace: stimulating dialogue! Artist Frank Jons and client Stefan Poss from DekaBank discuss Kneip’s collection of art in its offices – located, appropriately, in a street named after celebrated Luxembourg-born photographer Edward Steichen. Stefan: How did you create your painting, ‘L’Embryon’? Jons: I made the painting in 2005. As its name suggests, it was the first in a range of works that include ‘Nouvelle Energie’ and ‘Bulle de l’espoir’ – all my work is linked together in some way. They are all part of a mental process, an inner evolution, that I have been through. Artists sometimes like to change their approach, and ‘L’Embryon’ was a new direction. Previous works seemed to me to be more static, less imaginative, and I needed more energy. I’m searching all the time for fluidity, osmosis with the spirit and gestures of the body. I was also very inspired by chaos and outer space. In this painting it comes from the planet Mars – hence “Mars mallows” that are full of

Creating a painting can take an hour, or a whole night Frank Jons

energy, coloured, reflecting the energy of the planet. The forms don’t represent anything.

Stefan: How long does a painting like that take? And what is your technique? Jons: Sometimes it can go very quickly, at others I need more time – creating a painting can take an hour, or a whole night. I paint on the floor – I can’t paint on a vertical canvas. I’m like a matador, splashing paint on the ground, and gaining inspiration and energy from music. Usually after a couple of hours I need to calm down and step back to see what’s emerging. I like the effect of “accidents” as I paint on the floor – sometimes the colours are mixing themselves. I use the tubes of colour like

I see a ray of light

Stefan Poss

pencils. It’s very physical – I need to be in great shape.

Jons: What does a ‘businessman’ see and feel in this painting? Stefan: Obviously, I have to say this painting is very attractive. I see coming from the painting a ray of light, especially after six months of winter, which could be the new energy coming from Mars. I like the flow of it, a flow no-one can stop, like a river or the daily traffic.

Stefan: How does art fit in with business? How do artists feel about having their works on show every day to people in their workplace?

Jons: It’s important that companies invest in the art. It gives a real impulse to creation, and for me it represents a symbiotic relationship between two different worlds. I can say this from knowledge, having been an employee in a company before making a complete change to become a full-time artist.

Stefan: Our company has invested in several paintings, mainly from artists in Berlin. People like to see art pieces in their workplace. It also provides value to clients, who for instance have something to reflect on if they are waiting to hold a meeting. It has a socialising effect, by prompting people to discuss its technique or meaning, it creates dialogue. Even when people criticise the artworks, it still launches discussion.

WEBSITE

www.kneip.com @KNEIPchat

NETWORKING

Networking

in Luxembourg

SERVICE CLUBS

Rotary: www.rotary-interclub.lu Lions Club: www.lions.lu Round Table: www.trl.lu Kiwanis: www.kiwanis.lu

SPORTS

Polo Club: www.poloclub.lu Tennis clubs: www.scheiss.lu, www.tennisspora.lu Golf Clubs: www.golfdeluxembourg.lu, www.kikuoka.lu, www.golfclervaux.lu, www.golfgaichel.com, www.golf-de-preisch.com Fitness: www.justmove.lu, www.coque.lu Yacht Club: www.mycl.lu Pool: www.Q42.lu Hockey: www.hockeyclubluxembourg.lu Rugby: www.rcl.lu

CHAMBERS OF COMMERCE

Chamber of Commerce of Luxembourg: www.cc.lu American Chamber of Commerce: www.amcham.lu Italian Chamber of Commerce: www.ccil.lu French Chamber of Commerce: www.cfci.lu Irish Chamber of Commerce: www.ilcc.lu British Chamber of Commerce: www.bcc.lu Indian Chamber of Commerce: www.ibcl.lu Nordic countries: www.nobelux.se JCI: www.jci.lu

PROFESSIONAL ASSOCIATIONS

Banks: www.abbl.lu Investment Funds: www.alfi.lu Private Equity: www.lpea.lu Industry and Trade: www.fedil.lu Fund Platform Group: www.fundplatformgroup.com Luxembourg for Finance: www.luxembourgforfinance.lu