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Custody Risk: Please expand on the issue of depository liability. 

Régis Veillet: It doesn’t make sense that, as a custodian and for a certain period, it looks like we are going to have more liability and responsibility for an alternative product than for a Ucits product in terms of asset restitution. As a custodian, we have been involved in AIFM discussions and we strongly believe depository banks should not be transformed into insurers. But we welcome a level playing field in Europe with the same rules for everyone. 

And then it is a matter of cost benefit. Perhaps some custodians might decide to exit certain markets because of the increased liability they will have in terms of restitution of assets. For example, country A is politically unstable; the market is not functioning well, but it is growing very fast, so there is a demand from investors to invest in that market. You can imagine that some custodians could say ‘sorry, but we don’t want to be depository for assets in those countries anymore because we have liability and we are just not comfortable with that’. So will investors really benefit in the end? I’m not sure.

Georg Lasch: There is a great opportunity for Luxembourg to position itself on AIFM and create another Ucits brand. At the beginning of the 1980s, no one imagined the success of Ucits today. It is similar now, we are well positioned to take that brand into the wider world. At the same time, there is still plenty to be done in terms of the AIFM Directive around definitions and liability.

Camille Thommes: Esma has come up with its recommendations, which are non-binding to the EC. We are expecting the EC to produce the final implementing measures by June at the latest.

Custody Risk: Is it too late to lobby Esma at this stage?

Camille Thommes: You have to congratulate Esma for its excellent work. With regard to the depository issues, the level of requirements is already very high for alternative products. Some adjustments still have to be made. Notably, reporting requirements remain too cumbersome. There is an opportunity to seize with the AIFM Directive. With some asset classes we are in a challenger position, notably with hedge funds and also in other asset classes we are well positioned. For example, many of the top real estate funds are already based in Luxembourg. We have the firm ambition to make Luxembourg an attractive place to domicile and manage your AIFM fund.

Georg Lasch: Another point is going to be the question of whether some of the fiduciaries will move into the depository space. Maybe we will see banks spinning off depositories for AIFM in order to create a level playing field in case smaller firms are allowed to position themselves as depository.

Daniela Klasén-Martin: Perhaps we need to work the space and we will have more specialist providers. It is true that we have an alternative funds industry in Luxembourg, but there is still room for development. When you think about the composition of the board, that is where we will need more and more experts on the specific assets. When the board takes the responsibility of the investment management side, which you would eventually have as an AIFM or even as you have today with a Sif, then you need to have people that can understand the underlying investment and make informed decisions.

Georg Lasch: All in all, the client is still fairly ignorant. They know about the AIFM Directive, they know the headlines, but you mentioned hedge funds and private equity. Some of the specialised alternatives managers focus on AIFM, but there is a huge amount of education required. There is a gap in the funds or management companies impacted by AIFM. There is a part – the specialist alternatives part – that has that on its radar and is focusing on its implementation. But there are many clients that have structures that are not considered as pure alternatives that would fall under the directive. We need to educate them quickly to meet the 2013 deadline.

 

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