1. GLOBAL AND EU DEVELOPMENTS
1.1 IOSCO: third hedge fund survey
The International Organization of Securities Commissions (IOSCO) has published a report on the findings from its third hedge fund survey, which include:
- the Cayman Islands remains the most popular domicile and managers are mainly US based;
- hedge funds remain mostly US dollar denominated, and mainly invested in North American assets;
- the use of equity-based strategies remains the most popular;
- financial leverage is used by hedge funds globally, except in Japan;
- hedge funds appear aware of the market liquidity of their portfolio positions, and can generally manage investor redemptions through suspensions and gating.
1.2 European Long Term Investment Funds (ELTIFs) are available
1.3 AIFMD: ESMA updates Q&As
The European Securities and Markets Authority (ESMA) has published an updated version of its questions and answers (Q&As) document on the application of the Alternative Investment Fund Managers Directive (the AIFMD). There are new Q&As (67-79) on reporting to national authorities under AIFMD arts 3, 24 and 42.
1.4 Listed Funds: European Commission proposal for a new Prospectus Regulation which would repeal the Prospectus Directive
The European Commission has adopted a legislative proposal for a new Prospectus Regulation which is intended to repeal and replace the Prospectus Directive along with its corresponding implementing measures (including the current Prospectus Regulation).
The main proposals are set out below.
- A quicker and simplified frequent issuer regime: an annual "universal registration document" (URD) can be maintained by issuers with their registered office in an EU member state and whose securities are admitted to trading on a regulated market or a multilateral trading facility. The URD should be drawn up annually and contain information on the company's organisation, business, financial position, earnings and prospects, governance and shareholding structure. An issuer whose URD has been approved by its competent authority for three consecutive years can file URDs annually without prior approval. This is likely to lead to cost reductions. It is also helpful that frequent issuers will benefit from a five day fast-track approval when they wish to issue shares, bonds or derivatives (this would apply during the period when approval is necessary).
- A higher threshold to determine when companies must issue a prospectus: under the Regulation, no EU prospectus would be required for capital raisings below EUR 500,000 (the current threshold is EUR 100,000). Member states will be able to set higher thresholds for their domestic markets; they will have the choice to exempt offers of securities to the public from the prospectus requirement under the Regulation, provided that the offer is only made in that member state and the total consideration of the offer is between EUR 500 000 and an amount which cannot exceed EUR 10 million.
- Shorter prospectuses and improved investor information, including a requirement that risk factors should be tailored to specific deals and it should be specified how material and likely they are.
- Creating a "lighter prospectus" for public offers by SME's with a market capitalisation below EUR 200 million (the current limit is EUR 100 million). This would only apply where SMEs have no securities admitted to trading on a regulated market.
- A new prospectus summary based on the key information document required under the PRIIPS Regulation – note this would apply to all securities, not just "retail" securities.
- Simplifying secondary issuance for listed firms.
- A single online access point for all EU prospectuses (on ESMA's website).
The European Parliament and the Council of the European Union will now discuss the draft Regulation and in due course adopt it (under the co-decision procedure). A number of delegated acts will also need to be adopted by the Commission. The European Securities and Markets Authority (ESMA) will also have to prepare draft regulatory and technical standards and guidance in relation to some of the provisions of the Regulation.
1.5 Invest Europe Professional Standards Handbook updated
"Before joining Invest Europe, members must agree to adhere to the Handbook, an annually updated publication, which brings together the principles of accountability, transparency and governance expected of our members. The Handbook also contains a code of conduct setting out the principles of ethical behaviour which members of Invest Europe should abide by."
"The Handbook reflects the heightened standards of transparency and accountability being pursued by investors in Europe's growing private equity industry, which represents €545 billion of assets under management. It also takes into account the new regulations in Europe, including the Alternative Investment Fund Managers Directive (AIFMD)."
The Handbook also includes the core financial recognition and reporting requirements for private equity funds, in the form of the IPEV Valuation Guidelines (which are endorsed by Invest Europe) and the Invest Europe Investor Reporting Guidelines, as well as the Invest Europe Code of Conduct for Placement Agents.
1.6 New Luxembourg AIF
The Luxembourg government has announced the launch of a new type of alternative investment fund (AIF). This AIF is to be called "reserved alternative investment fund" (RAIF). The RAIF's salient features are designed on the ones of the widely popular Luxembourg specialised investment fund (SIF). However, unlike the SIF, the RAIF will not need to be approved and supervised by the Luxembourg supervisory authority (CSSF).
Since the RAIF qualifies as an AIF it will have to be managed by an alternative investment fund manager (AIFM). Although the RAIF is itself not regulated, its AIFM will be subject to the supervision of the CSSF. The RAIF has been created at the initiative of the Luxembourg investment fund community. Its aim is to reduce time-to-market for products designed only for sophisticated investors. Such investors do not necessarily require the protection and do not want to bear the additional costs of regulation at the level of both the product and its manager.
The RAIF will be of most use to established fund managers who already have a licensed AIFM, and should remove one of the current barriers that may deter such a manager from domiciling a new fund in Luxembourg. A little patience will however be required as the RAIF will have to undergo the Luxembourg legislative process.
2. UK DEVELOPMENTS
2.1 UK ELTIFs: new FCA application form and Handbook Notice 28
The FCA has published a form for use by alternative investment fund managers (AIFMs) when applying for authorisation of a UK European long-term investment fund (ELTIF) and/or approval to manage a UK ELTIF. This form also covers applications related to internally managed ELTIFs (which simultaneously must apply for authorisation as a full-scope UK AIFM). However, the form may not be used to apply to market the units or the shares of the ELTIF.
Another UK ELTIF development is FCA's Handbook Notice 28 which includes the ELTIF Regulation Instrument 2015, FCA 2015/66. This instrument came into force on 9 December 2015 and makes minor consequential changes to the FCA Handbook relating to the ELTIF Regulation (which has direct effect in Member states).
2.2 Listed Funds: Primary Market Bulletin No 12
The FCA published its Primary Market Bulletin No 12 which includes various changes to the Knowledge Base, including amendment of existing procedural and technical notes. It also covers the re-consultation of a new technical note on the application of related party rules to funds investing in highly illiquid asset classes. The revised draft technical note contains welcome changes to the original draft as its scope has been expanded to cover a potentially broad range of illiquid asset classes. The original draft was confined to listed infrastructure funds only.
The proposals are summarised in the Primary Market Bulletin and full details are given in guidance consultation GC15/7. Comments are requested by 11 January 2016.
2.3 Listed Funds: Prospectus Directive: upcoming changes to sending final terms to host competent authorities
The FCA has published a webpage containing information for issuers on upcoming changes to sending final terms to host competent authorities under the Prospectus Directive. From 1 January 2016, Article 5(4) of the Prospectus Directive will no longer require issuers to send final terms to the competent authority of host Member States. Instead, the home competent authority must send final terms that have been filed with it as home competent authority to the competent authorities of host Member States.
2.4 Listed Funds: Viability statements have become mandatory and FCA Quarterly consultation - impact on LR of PR changes based on Omnibus II
The FCA has introduced a new Listing Rule (LR) (LR 9.8.6 (3)(b)) which require companies to include in their annual report and accounts a statement by the directors on their assessment of the prospects of the company ("viability statement"). Previously this was included in the UK Corporate Governance Code (and in the AIC's Code of Corporate Governance) so the viability statement was required only on a "comply or explain basis". However, this statement is now mandatory as it is included in LR.
Another LR development is the FCA's quarterly consultation paper (CP15/42). Proposed changes include impact on the Listing Rules (LR) of changes to the Prospectus Rules (PR) based on the Omnibus II Directive. Certain LRs on listing particulars cross-refer to rules in PR. Current LR requirements would continue do so (and as such apply the relevant prospectus requirements to listing particulars). These are mainly consequential and administrative in nature.
Comments are requested by 4 January 2016.
2.5 Listed Funds: Transparency Amending Directive: FCA and Treasury policy statement on UK implementation and forms
HM Treasury and the FCA have published a joint policy statement setting out their response to feedback received in relation to their joint consultation on proposed amendments to the Financial Services and Markets Act 2000 (FSMA) and the Disclosure and Transparency Rules (DTR) to implement the directive amending the Transparency Directive, and certain other miscellaneous amendments to the DTR.
The FCA has also published the Disclosure and Transparency Rules Sourcebook (Transparency Directive Amending Directive) Instrument 2015 (FCA 2015/54), which implements the changes to the DTR as outlined in the joint policy statement. These changes came into force on 26 November 2015. See also FCA's standard form for issuers to use when notifying the FCA of their home member state in accordance with the revised requirements of DTR 6.4 which apply from 26 November 2015 (implementing the Transparency Directive Amending Directive).
2.6 UK - FCA publishes terms of reference for asset management market study
The FCA has launched an asset management market study, see Terms of Reference, which will focus on: (i) competition; (ii) control of costs; and (iii) the effect of investment consultants on competition for institutional asset management. The FCA will be approaching market participants for information and aims to publish an interim report in summer 2016 and a final report in early 2017. Depending on the outcome, the FCA may intervene to promote effective competition.
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