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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.
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?
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
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
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.
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;
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
pwc.com/ie
© 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the
network of member firms of PricewaterhouseCoopers International Limited, each of which is
a separate and independent legal entity. PricewaterhouseCoopers, One Spencer Dock, North
Wall Quay, Dublin 1 is authorised by the Institute of Chartered Accountants in Ireland to carry on
investment business. Designed by PwC Design Studio 02115.

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02115 Ucits Iv Fund Range Rationalisation

  • 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
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