This is the first edition of a new report which we have produced which looks at the global distribution of Irish UCITS funds. Irish UCITS funds are distributed successfully on a global basis.
1. Assurance
Asset Management
UCITS IV
Fund Range
Rationalisation
PwC contacts:
Ken Owens
Tel: +353 1 792 8542
Email: ken.owens@ie.pwc.com
Andy O’Callaghan
Tel: +353 1 792 6247
Email: andy.ocallaghan@ie.pwc.com
Pat Convery
Tel: +353 1 792 8687
Email: pat.convery@ie.pwc.com
“Re-structuring strategies rationalisation on a cross border
and potential for cost savings basis. UCITS IV brings forward the
from fund rationalisation opportunity for Asset Managers
to streamline and optimize their
opportunities within UCITS product range to benefit from
IV” greater economies of scale and
potential tax savings post re-
A key component to UCITS IV is structuring.
the facilitation of Fund Mergers and
Master Feeder Structures within European funds tend to be small
the UCITS regime, a welcome when compared with US funds.
development with the potential Like many of the other UCITS IV
for cost savings and added proposals, it is hoped that allowing
efficiencies to the UCITS brand. Fund Mergers and Master Feeder
While Fund Mergers were previously Structures will promote economies
allowed at national level, the new of scale and greater efficiencies.
UCITS IV regime provides for fund
First for business. First for people.
2. UCITS IV
Fund Range Rationalisation
Investment managers Why consider Fund Mergers? • Consideration of investment
performance of merging UCITS
The recent market turmoil and
need to control short- conditions have highlighted the • Marketability and product history
term profit margin many challenges faced by the (sales success to date)
industry in terms of significant
pressures while decreases in assets under • Fund size & viability of merged
preparing for future management and declining profit UCITS
margins. Investment managers
growth. need to control short-term profit Location Preference:
margin pressures while preparing
What is the preferred location for the
for future growth. In that context,
merging UCITS?
UCITS IV offers the opportunity for
streamlining your Product Portfolio
Key considerations:-
with the introduction of cross border
Fund Mergers. • Fiscal & Taxation considerations;
Regardless of the legal form and • Knowledge of & familiarity of local
wherever the location within the EU, legal frameworks;
UCITS funds should be permitted
• Regulatory reputation &
to merge. Although subject to
responsiveness;
certain pre-conditions including
prior authorisation by the competent • Locations of Products & current
authorities of the merging UCITS infrastructure; and
and defined measures to ensure
• Inward marketing & registration
investor protection, each member
costs.
state must provide for domestic and
cross border mergers under national Fund Mergers:-The Outcome
law.
• Fund Rationalisation &
streamlining of Product Portfolio;
Key criteria when considering • Amalgamation of smaller AUM
cross border and domestic funds, increased economies of
mergers:- scale & competitiveness with
• Investor Implications: How is this international markets;
likely to impact the tax position • Larger AUM funds with strong
of current investors? Can the tax track records optimising market
implications of the Rationalisation share; and
be managed in an efficient way?
• Potentially lower TER’s for
• Product Portfolio:-Is there investors and opportunity for
alignment of investment strategy reduced operating costs leading
and a strategic fit of product to increased profit margins.
between the proposed merging
funds?
3. UCITS IV
Fund Range Rationalisation
Key challenges for Fund • The drawing up of common draft jurisdictions at national level, the
Mergers terms of the potential merger and proposals under the UCITS IV create
merger rationale to the investors further opportunities for greater
While the introduction of cross of both the merging and receiving economies of scale and the potential
border fund mergers is a welcome UCITS and impact assessment of reduction of TER’s through the
development, certain factors have the proposed merger; facilitation of cross border Master
been identified that may prove Feeder structures and enabling one
• The valuation of assets and
challenging during the merger or more feeder funds to pool their
determination of the calculation
process:- assets in a single master fund.
method of the exchange ratio;
and
• Tax implications – evaluating the
tax implications of fund mergers • Avoiding an excessive outflow of Key requirements for Master
for the underlying investor and AUM for the merging fund at the Feeder Structures within
the management company may point of merger. UCITS:-
prove challenging while there
• The Master and each of
are different taxes regimes in the
Master Feeder Structures:- the Feeders must each be
respective countries of residence
UCITS IV proposals also provide established as a UCITS fund;
and until such time as the
merging of UCITS is recognised for asset pooling measures through • Each Feeder Fund is required to
as a tax neutral event; the facilitation of Master Feeder invest at least 85% of their assets
structures. While Master Feeder into the Master Fund, with a
structures already exist in some maximum of 15% of their assets
4. UCITS IV
Fund Range Rationalisation
held in ancillary liquid assets, • If the Master Fund and the Key Challenges for Master
financial derivative instruments Feeder Fund are established in Feeder Structures
or in the case of investment different; jurisdictions, the Master
The key challenges to implementing
companies, property essential for Fund must also demonstrate that
Master Feeder Structures will
the direct pursuit of business; it is a UCITS fund and that it is
include:-
not itself a Feeder Fund;
• To avoid the creation of opaque
structures, the Master Fund • The Master Fund and the Feeder • Drafting of legal documentation
may not be itself a Feeder Fund Fund must enter into a legally and enforceable agreements
nor may it invest in the units of binding agreement; which the Master and Feeder
another Feeder Fund. The Master UCITS must enter into or the
• The Feeder Fund and the internal conduct of business rules
Fund must provide a declaration
Master Fund may have different where both are managed by the
to the effect that it does not hold
custodians or auditors, however, same management company;
any units of a feeder fund as part
if this is the case, the parties
of the approval process; • Effective monitoring and
must enter into an information
• The Master, or one or more sharing agreement; and information sharing of Master by
Feeders may be located in the Feeder Funds;
• The Feeder UCITS must act
different Member States; • Market timing & impact of events
in the best interest of its unit-
• The Home State Regulator of the holders and in doing so shall of the Master Fund affecting the
Feeder Fund must approve its monitor effectively the activity of Feeder Funds;
investment policy; the Master UCITS.
Example of Asset Pooling within Master Feeder Structure
Master A Master XY
Feeder funds
Feeder Feeder Feeder
Investors
5. UCITS IV
Fund Range Rationalisation
• Provision of investor information How we can help? Our Services comprise of the
and information flows between PwC can provide a range of following:-
custodian of Master and Feeder services to assist you in determining 1. Our tax services include:
UCITS; your Fund Rationalisation / Re-
• Analysis of tax implications pre & structuring Programme, whether • Fund redomiciliation and
post restructuring; assisting with the initial feasibility migration services, including
work and impact analysis and in Implementation of Master/Feeder
• Avoidance of a taxable event for terms of identifying the potential structures;
investors on restructure; cost savings to be gained from a
rationalisation programme. We have • Global Fund Distribution
• Maintaining investor tax
a fully integrated Asset Management solutions;
efficiencies of existing structures;
and service offering for Asset Managers • Ongoing regulatory and tax
operating and distributing UCITS reporting to ensure compliance
• Minimising any additional costs funds. with cross border requirements in
(e.g. transfer taxes) arising on
relevant jurisdictions;
restructuring.
• Tax efficient investment
strategies;
• Product structuring of a cross
border platform; and
• VAT advice and structuring.
6. UCITS IV
Fund Range Rationalisation
We can help you to determine the • Assessment of the regulatory
appropriate structure and framework environment;
for your UCITS Product suite under
• Consideration of the legal and
the new UCITS IV regime. We have
political principles;
extensive experience in assessing
taxation and regulatory implications • Fiscal & local taxation
of Fund Rationalisation. PwC arrangements;
operates a Global Fund Distribution
• Government incentives & local
service designed to provide Asset
inducements;
Managers with a series of solutions
to ensure efficient and effective • Staffing & resource capabilities;
cross border strategies.
• Local compliance & corporate
governance requirements; and
2. Assessment & feasibility study on
rationalisation of EU domiciled • Marketability & passporting
activities – arrangements.
Focusing on the following:-
3. Business Rationalisation
• Product Structure and Investment Services:-
Strategy;
• As part of the feasibility study,
• Marketing & Distribution; and we will analyse the respective
• Management Company & related qualities of domiciling each entity
Administration activities. structure in a particular member
state;
As part of the feasibility study, we
will analyse the respective qualities • We will assist with optimising the
of domiciling each entity structure tax efficiency of the structuring
in a particular Member State. Our through the management of
review criteria will consist of the investors taxes, fund taxes and
following:- portfolio taxes where possible;
• This will include a review of the
• Assessment of fiscal environment capital gain taxes, VAT and other
to maximise investment tax transfer taxes applicable to the
efficiencies; restructuring;
• Consideration of impact of fund
reorganisations for international
investors;
7. UCITS IV
Fund Range Rationalisation
• We will assist with the transfer • In addition to our taxation – Global Human Resources
of existing services to the core services and re-structuring Services
business location of choice best analysis, we can also provide the
– Operational Services
suited to your corporate structure following services, our one stop
and strategy; shop to Fund Rationalisation:- – Company Audit
• Services will include corporate – Regulatory Advisory Services
set ups, liquidation of existing
– Legal Services
structures, regulatory and
advisory assistance; and – Company Secretarial Services