Part 4: The impact of AIFMD and convergence survey.

Transcription

1 Part 4: The impact of AIFMD and convergence survey

2 Executive summary $20 trn total AUA $16 trn total AUM 62 survey respondents This white paper is the fourth in a series of reports on the theme of convergence and the Alternative Investment Fund Managers Directive (AIFMD), the first of which was published by Multifonds in June This year s survey observes the trends and impact of the Directive on the fund industry as it approaches its one-year implementation anniversary. Nearly one year on from the implementation of AIFMD in July 2014, this report examines whether the positive outlook and predictions uncovered in last year s report have been fulfilled. The findings re-examine the challenges faced by organizations since implementation. Unsurprisingly the process of reporting to regulators features high on this list, and has been a pain point for many in the last year. Now the industry looks forward to consider the next iteration of AIFMD and whether the passport should and will be extended to non-eu AIFs and non-eu AIFMs. The passport extension is viewed as a critical milestone by survey respondents in AIFMD s journey to becoming a global brand to rival UCITS. This survey was carried out in Q and received 62 responses from the global fund administration industry, including global custodians/ fund administrators (31%), asset managers (29%), third-party administrators (18%) and a mix of both traditional and alternative funds, including hedge funds, commodities, private equity, real estate, long only/mutual funds and unit trusts. KEY FINDINGS 81% of respondents think that reporting to regulators is their largest and most pressing concern from AIFMD 56% of respondents remain unclear on how regulators will use and apply the data they receive from AIFMs Greater investor protection and greater transparency for investors in communications and reporting are seen as the biggest benefits of AIFMD Less than a quarter (23%) of respondents believe that AIFMD enables regulators to better identify threats to market stability Luxembourg, Ireland and UK are viewed as the most successful European domiciles under AIFMD for attracting new business or funds re-domiciling Depositary costs have stabilized. Of those who expressed an opinion, 81% have seen depositary costs increase by less than 2.5bps 74% agree that the AIFMD passport should be extended to EU managers for non-eu AIFs but a significant 39% of all respondents think this should only happen when private placement is abolished (which 69% agree should happen but not until 2018) 56% agree that the passport should be extended to non-eu managers of non-eu AIFs North America stands to gain if the passport is extended; 55% specified North America as the region most likely to see the biggest uptake when passport extended 87% believe that AIFMD will rival UCITS as a global de facto international standard 76% of respondents think that non-eu managers are setting up European operations to take advantage of AIFMD Only 50% of respondents (compared with 77% in 2013 and 53% in 2014) think that EU managers will choose to set up offshore structures to avoid the additional costs of AIFMD for non-eu investors 89% of respondents agree that the convergence of traditional and alternative funds will continue 1 MULTIFONDS Convergence and the impact of AIFMD survey

3 THE REPORTING CHALLENGE This year has seen the majority of AIFMs complete their registration and authorisation process and submit their first reports and this has undoubtedly presented challenges. The process of reporting has been troublesome, and regulatory reporting continues to be the biggest headache for respondents. To achieve this, AIFMs have had to work out how to marry their multiple systems together and then aggregate, store and report the resulting data in the format required by their local competent authority. Last year 66% cited it as their biggest challenge, and this year saw that figure rise to a massive 81%. Challenges from AIFMD Reporting to regulators Depositary liability Authorisation process Risk management Operational requirements Marketing of funds Remuneration Depositary costs Other, please specify % 11.5% 41.9% 34.4% 35.5% 26.2% 32.3% 32.8% 29.0% 31.2% 24.2% 17.7% 26.2% 14.5% 16.4% 65.6% 80.6% THE REALITY ON COSTS In previous years, doubts over the cost of complying with AIFMD presented a very real concern but it appears the prohibitively high level of costs that some feared have not materialized. Depositary cost levels seem to have stabilized in line with last year s expectations. The majority (56%) have seen their depositary costs increase by less than 2.5bps, with only 13% seeing costs at levels above this. This is in line with predictions made in Multifonds 2014 survey, when nearly half (49%) of fund administrators expected the increase in depositary costs to be lower than 2.5bps. But it is at the bottom end of earlier estimates. In 2013, 41% of survey respondents speculated that depositary costs could be between 5bp and 25bp. Depositary cost levels Less than 5 bps 5-10 bps bps More than 25 bps 6.3% 4.9% 12.5% 6.1% % 30.6% 27.8% 46.9% 67.8% 67.2% The potential growth and opportunities for Europe coming from non-eu managers were countered by concerns that costs might prove prohibitive and drive EU managers out of Europe to more cost-efficient offshore alternatives. However, such an exodus does not look set to occur. This year only 50% of respondents see evidence of managers choosing to set up offshore structures to avoid the additional costs of AIFMD in last year s survey, this had already dropped to 53% from previous years higher levels. And of that 50%, the vast majority (44% of total respondents) are seeing only a minority of managers setting up offshore structures. REALIZING THE BENEFITS ONE YEAR ON The AIFMD implementation process appears to have gone smoothly. Fully 85% of respondents believe that their local regulators across the EU have for the most part been successful in their implementation despite difficulties around authorization and reporting. As in previous years, Luxembourg, Ireland and the UK have topped the tables as those most successful under AIFMD in attracting new business or funds re-domiciling, followed at a distance by Switzerland and France and then the rest of Europe. 76% of respondents agree that non-eu managers are moving into Europe and setting up European operations to take advantage of AIFMD. The overarching objective of AIFMD, as specified by the European Commission, is to create a comprehensive and secure framework for the supervision and prudential oversight of AIFMs in the EU. One of the key objectives, in response to the financial crisis, is to provide investor protection by imposing new depositary standards and enhanced transparency. The survey findings conclude that the Directive is meeting that aim; greater transparency for investors in communications and reporting, and greater investor protection are viewed as the leading benefits of AIFMD, with 56% and 60% respectively citing them. MULTIFONDS Convergence and the impact of AIFMD survey 2

4 SPOTTING MARKET INSTABILITY But on the ability of AIFMD to prevent market instability and build-up of systemic risk respondents did not exhibit the same high confidence levels. The survey found that less than a quarter of respondents (23%) believe that AIFMD enables regulators to better identify threats to market stability. There also appears to be a lack of clarity about what regulators are going to do with all the data collected. More than half (56%) of respondents remain unclear on how regulators will use and apply the data they receive from AIFMs. In the same way that AIFMs have had to work out how to aggregate, store and report their data, it is now up to the regulators to do the same. Now that they have collected the information and stored it, it is imperative that they communicate to the industry how that information will be consolidated, used and analysed to achieve AIFMD s goals and identify systemic risks. TO EXTEND OR NOT TO EXTEND THE FUTURE OF THE PASSPORT The industry consensus from the Multifonds survey is that the AIFMD marketing passport should be extended, but not until private placement is removed. The majority of respondents believe private placement will stay until 2018, and there doesn t appear to be much urgency in extending the passport until private placement is abolished. However, the passport is viewed as critical to the success of AIFMD becoming a successful global brand. Nearly three quarters (74%) agreed that the AIFMD passport should be extended to EU managers for non-eu AIFs, but a significant 39% of all respondents think this should only happen when private placement is abolished. As for the wider availability of the passport to non-eu managers of non-eu AIFs, 56% agreed that the passport should be extended. Existing channels such as private placement appear to be meeting the current market needs. When questioned about the availability of private placement, the majority (58%) thought it should last until Until the existing channels are challenged or removed or investors demand a regulated alternative it is unlikely that the passport extension program will be accelerated. When and if the passport is extended to non-eu managers, 55% of respondents believe that North American managers will be the group that stands to gain the most. THE BATTLE OF THE BRANDS AS CONVERGENCE CONTINUES The ultimate challenge for AIFMD is to become a global brand comparable to UCITS (Undertakings for Collective Investment in Transferable Securities). The year since implementation has significantly increased AIFMD s chances for achieving brand status. Last year only 54% believed it would become a global brand on a par with UCITS, but this year sees that rise, and 87% believe that AIFMD will become a global de facto international standard for distributing AIFs. However, of those less than a fifth (19%) expect this to happen within the year; a further 35% expect it to happen within five years and a further 32% don t believe it will happen until the passport is extended. Will AIFMD become a global brand to rival UCITS? Yes No % 14.1% 24.6% 26.6% 54.1% 59.4% 87.2% Convergence between traditional and alternative funds continues to gain momentum, and this year 89% of respondents agree it will continue. With such ongoing convergence comes the question over the relative positioning between UCITS (the dominant vehicle for cross-border funds) and the newly implemented AIFMD. As AIFMD looks set to become a global brand, it will be interesting to see how the two brands of UCITS and AIFMD evolve and position themselves relative to each other, and which products and investors (retail or institutional) they will serve best. There will no doubt continue to be some degree of overlap between the two product types, at least in the short to medium term, but looking further forward, AIFMD may replace UCITS for more sophisticated, complex alternative products. 3 MULTIFONDS Convergence and the impact of AIFMD survey

5 Survey findings AIFMD one year on It has been nearly a year since the implementation of the Directive on 22 July 2014, which marked the end of the transitional period for AIFMD. This year has seen the majority of AIFMs complete their registration and authorisation process and submit their first sets of Annex IV reports to regulators. It has been a year when there have undoubtedly been setbacks and challenges. As the authorisation deadlines approached, the regulators had to cope with mounting volumes of applications, and reporting systems were put through their paces for the first time, with varying degrees of success. As the industry emerges from that first year, this survey also provides a view on the Directive so far and the challenges and opportunities that lie ahead. Multifonds has tracked the progress of the Directive since it was first proposed back in Whilst the prospect of AIFMD was initially met with trepidation and fear, last year s survey prior to implementation showed a real shift in attitudes, as the industry started to recognize some of the benefits and opportunities. This report ascertains whether this positivity has continued to grow, and whether past surveys predictions have materialised. THE CHALLENGES SINCE IMPLEMENTATION This year, as in 2014, respondents were asked to indicate which elements of AIFMD have presented the biggest challenges: the authorization process, reporting to regulators, remuneration, marketing of funds, risk management, depositary costs, depositary liability or operational requirements. Respondents were able to select multiple items from the list. Depositary liability remains high on the list of challenges to the industry, with 42% of respondents citing this. The authorization process completed by most during 2014 also features highly, with 35% specifying that as their biggest challenge. Challenges from AIFMD Reporting to regulators Depositary liability Authorisation process Risk management Operational requirements Marketing of funds Remuneration Depositary costs Other, please specify % 11.5% 41.9% 34.4% 35.5% 26.2% 32.3% 32.8% 29.0% 31.2% 24.2% 17.7% 26.2% 14.5% 16.4% 65.6% 80.6% But the consensus from this year is that the overwhelming challenge has been reporting to regulators, which has continued to be the biggest headache for respondents. Last year 66% cited it as their biggest challenge, and this year saw that figure rise to a massive 81%. Within 30 days of the start of the reporting period, AFIMs were required to submit their first set of Annex IV reports. To achieve this they had to work out how to marry their multiple systems together and then aggregate, store and report the resulting data required by the Annex IV reports in the format required by their local national competent authority. This was not an insignificant task! On the recipients side, the national competent authorities have also had problems. During the year there have been reports of teething problems with submission through the online reporting systems resulting in delays. Both the Financial Conduct Authority (FCA) in the UK and Bafin in Germany have had problems with their reporting systems, and some countries are still in the process of developing their systems. However, despite challenges around authorization and reporting, survey respondents believe that their local regulators have been for the most part been successful in their implementation of AIFMD fully 85% agreed with that view. THE REALITY ON COSTS In previous years, doubts over the cost of complying with AIFMD presented a very real concern, and the presumed high cost levels were often seen as the touchstone for the Directive s ultimate success or failure. In reality, it appears the prohibitively high level of costs that some feared have not materialised. Firstly, depositary cost levels seem to have stabilized in line with last year s expectations. In last year s survey, 49% expected the increase in depositary costs to be less than 2.5 bps, while 28% didn t know or have a clear view. This year, the majority (56%) have experienced an increase of depositary costs of less than 2.5 bps with only 13% seeing charges above this. That is at the bottom end of earlier estimates. In 2013, 41% of survey respondents speculated that depositary costs could be between 5bps and 25bps and a further 47% didn t know or have a clear view. Depositary cost levels Less than 1 bp bps bps 5-10 bps bps More than 25 bps % 8.2% 11.3% 18.0% 22.6% 33.9% 30.6% 27.8% 40.9% The potential growth and opportunities for Europe from non EU managers had previously been countered by concerns that AIFMD-related costs might prove prohibitive and drive EU managers out of Europe to more cost-efficient offshore alternatives. MULTIFONDS Convergence and the impact of AIFMD survey 4

6 However, such an exodus of managers from Europe does not look set to occur. In fact, the threat of EU managers choosing to set up offshore structures to avoid the additional costs of AIFMD for non-eu investors has declined again. In 2013, 77% thought that managers would choose to set up offshore structures. In 2014, this had dropped to 53% and this year it has fallen further, to 50%. Of that 50%, the vast majority (44% of total respondents) see only a minority of managers setting up offshore structures. Will EU managers choose to set up offshore structures to avoid the additional costs of AIFMD for non-eu investors? Yes, vast majority Yes, but only minority No % 17.2% 17.2% 21.0% 14.8% 6.3% 29.3% 32.8% 43.6% 45.9% 59.4% BRINGING BUSINESS TO EUROPE The introduction of AIFMD potentially makes Europe a more attractive venue and a potential avenue for gathering additional assets in alternative funds. Fully 76% of respondents agreed that this is the case and that non-eu managers are setting up European operations to take advantage of AIFMD. Similarly high levels have been observed in the previous surveys, where 82% (2014), 70% (2013) and 69% (2012) thought that this would be the case. Will non-eu managers set up EU operations to take advantage of AIFMD? Yes, vast majority Yes, but only minority No % 24.6% 18.8% 11.7% 9.7% 9.8% 17.2% 9.8% 14.5% 8.2% 12.5% % 57.4% % In terms of which domiciles will benefit most from new business or funds re-domiciling in Europe, the survey asked which top three European domiciles would be most successful under AIFMD. In previous years, Luxembourg, Ireland and UK have dominated, and this has continued. Respondents were asked to select their top three choices of domicile, as illustrated in the chart below: 89% placed Luxembourg among the top three winners 79% selected Ireland 60% selected the UK Domiciles in Europe likely to be most successful Luxembourg Ireland UK Channel Islands France Switzerland Germany Netherlands Belgium Italy Spain 9.7% 13.1% 17.7% 9.8% 10.9% 21.0% 8.2% 18.8% 12.9% 6.6% 12.5% 4.8% 4.8% 7.8% 4.7% 3.2% % 59.7% 65.6% % 96.7% 89.1% 79.0% 88.5% 73.4% Ireland and Luxembourg are both well positioned as leading onshore domiciles for alternative funds. As a recognized alternative fund center, and with an extensive track record of UCITS distribution, Ireland should be an obvious choice for funds choosing to re-domicile to an onshore location for new business growth. Luxembourg is well established as the leading UCITS domicile and is recognized for its strong distribution network and strong retail focus. The UK is also well positioned, with a substantial existing critical mass in AUM although despite the UK s dominant position in fund management, competition with both Luxembourg and Ireland to be the leading location for European fund domicile is fierce. This is reflected in the results above, although the UK is becoming a more important location as a fund domicile. Of the top five locations in terms of fund domicile in Europe, the UK saw the biggest increase in assets in MULTIFONDS Convergence and the impact of AIFMD survey

7 AIFMD achieving its goals GREATER INVESTOR PROTECTION The overarching objective of the AIFMD, as specified by the European Commission, is to create for the first time a comprehensive and secure framework for the supervision and prudential oversight of AIFMs in the EU. In response to the financial crisis, which highlighted the range of risks to which investors in investment funds are exposed, the European Commission stated that investor protection is one of the core objectives of the AIFMD. It is the intention of AIFMD to introduce safeguards to ensure that investors in alternative investment funds are well-informed and adequately protected. In particular, the AIFMD is intended to increase the transparency of AIFM and the funds they manage and market. This will help investors to perform better due diligence. In addition, a variety of operational and organizational requirements will help to ensure that investors are appropriately protected 1. In the survey, respondents were asked what they see as the main benefits arising from AIFMD. They were able to select multiple items from a list. In line with the Directive s aims, greater transparency for investors in communications and reporting, and greater investor protection are indeed seen as the leading benefits from AIFMD, with 56% and 60% respectively citing them. In addition, 40% agree that AIFMD brings new opportunities to Europe and 32% think that it brings increased alternative assets to Europe. Benefits of AIFMD Greater investor protection Greater transparency for investors communications and reporting New opportunities in Europe Increased alternative assets in Europe Enables regulators to better identify systemic trends/events that may impact market stability None of the above Other, please specify 4.8% 4.8% 22.6% 32.3% 40.3% 59.7% 5 SPOTTING SYSTEMIC TRENDS The FCA specifies on its website that the aims of AIFMD include the ability: To enhance supervisory practices among EEA competent authorities to support timely and pre-emptive action to prevent market instability and the build-up of systemic risk in the European financial system. But on the ability of AIFMD to prevent market instability and build-up of systemic risk respondents did not exhibit the same high confidence levels. The survey found that less than a quarter of respondents (23%) believe that AIFMD enables regulators to better identify threats to market stability. That throws serious doubt on the industry s current ability to achieve this goal. Now that implementation is well under way, the national competent authorities have a wealth of information collected through the Annex IV reporting submissions of AIFMs. However, the survey found that there is real doubt about what regulators will do with all the information that has been collected. In fact 56% of respondents remain unclear on how regulators will use and apply the data they receive from AIFMs. Over the last year, the AIFMs themselves have had to work out how marry their multiple systems together and then aggregate, store and report the resulting data. It is now up to the regulators to do the same. Now that they have collected the information and stored it, it is imperative that they communicate to the industry how that information will be used and analysed to achieve AIFMD s goals and identify systemic risks. There has been talk within the industry of a centralised hub or utility that would help national regulators keep a check on systemic risk and share information gathered from alternative managers. The industry will watch to see if this materialises and in what form, but given the difficulties experienced by regulators in their individual IT systems for collecting information, the delivery of a consolidated and aggregated view may be a while off. Transforming an enormous volume of cross-jurisdictional data into meaningful consolidated information that can be used by the decision makers to identify industry wide threats and trends will require a high degree of cooperation and effort. The overwhelming majority (87%) believe AIFMD will ultimately come to rival UCITS as an international brand, although this will take time 1 Source: European Commission MULTIFONDS Convergence and the impact of AIFMD survey 6

8 AIFMD the next steps Now that the implementation is well underway, thoughts are turning to the next steps, and specifically whether the promised passport extension will materialize. EXTENDING THE PASSPORT Following a limited transition period, and subject to the conditions set out in the AIFMD, the passport is set to be extended to the marketing of non-eu funds, managed both by EU AIFM and AIFMs based outside the EU. At the moment, only EU-authorised firms can use the marketing passport to distribute funds in the EU. For non-eu firms, private placement regimes are currently still in place and are used to distribute alternative funds in Europe. A final decision has not been made as to when private placement regimes will be removed, although it is widely believed to be By 22 July 2015, the European Securities and Markets Authority (ESMA) has to submit to the European Commission an opinion on the functioning of the EU passport under the AIFMD; the functioning of the marketing of non-eu AIFs by EU AIFMs in the EU; and the management and/or marketing of AIFs by non-eu AIFMs in the EU. Some local regulators, like ALFI in Luxembourg, have already issued their positioning on the passport: ALFI is of the view that an extension of the passport to non-eu managers in 2015 would be premature. Moreover, ALFI thinks that abolishing national private placement regimes (NPPRs) is a prerequisite for an extension of the passport to third countries. A parallel system would cause market distortion by putting EU AIFMs at a clear disadvantage. Therefore, ALFI concludes that a decision by the Commission should be deferred until at least 2018, i.e. the point in time where NPPRs are meant to disappear. The survey questioned respondents on their view to extending the passport. A significant 74% agreed that the AIFMD passport should be extended to EU managers for non-eu AIFs, but a significant 39% of all respondents think this should happen only when private placement is abolished. Only 15% believe that the passport should not be extended at all. Should the AIFMD passport be extended to non-eu AIFs managed by EU AIFMs? 14.5% 11.3% 38.7% 16.1% 19.4% Yes, immediately Yes, within one year Yes, when private placement is removed No On the wider availability of the passport to non-eu managers of non-eu AIFs, there was less clarity. In this case, a more sizeable 32% of total respondents believe that it shouldn t be extended. 56% did agree that the passport should be extended, and of this group, 34% think it should happen when private placement is removed. Should the AIFMD passport be extended to non-eu managers marketing non-eu AIFs? 32.3% 11.3% 16.1% 33.9% Yes, immediately Yes, within one year Yes, when private placement is removed No So long as private placement remains available, there doesn t appear to be much urgency to replace it with the AIFMD passport. Only when it is removed do respondents see the real need for the passport extension. In the survey, none of the respondents thought that private placement should be abolished immediately; only 11% agree it should go within one year, and the majority (58%) think it should last until WHO STANDS TO GAIN FROM A PASSPORT EXTENSION The passport is seen as one of the biggest benefits of AIFMD, and as discussed later in this paper, is linked with AIFMD s ultimate success as a brand. In 2014, 72% of respondents in the survey agreed that by introducing more marketing opportunities in Europe, the passport will help gather more assets into Europe. The roll-out of the passport will require co-operation agreements to be put in place between the EU and each of the respective partner countries. According to ESMA, over 30 countries (including the US, Cayman Islands and Switzerland) have already done this. Should the passport be extended to non-eu managers, the survey asked which region outside of the EU would benefit most. North America came out on top, with 55% specifying it as the region most likely to see the biggest uptake in those circumstances, followed by Asia with 21%. Region most likely to benefit from passport extension North America South America Middle East Africa Asia Australia None of the above 3.2% 14.5% 21.0% 54.8% 7 MULTIFONDS Convergence and the impact of AIFMD survey

9 Not everybody has realized the potential of the passport yet. But the current channels for distribution and marketing into the EU appear to be meeting the market need. For example, US 40 act funds can already be distributed in the EU, and until the existing channels are challenged or removed, or investors demand a regulated alternative, it is unlikely that the passport extension program will be accelerated. THE BATTLE OF THE BRANDS - UCITS AND AIFMD The challenge for AIFMD is to become a global brand comparable to UCITS (Undertakings for Collective Investment in Transferable Securities). UCITS was set up as a European cross-border mutual fund vehicle, but over the last 20 years has been successfully exported as a well-regulated global standard for mutual funds in Asia and Latin America. There is much talk in the industry of AIFMD becoming a similar kite mark for alternative funds and the survey findings confirmed this. These are early days for AIFMD, but the overwhelming majority (87%) of respondents believe that it will ultimately come to rival UCITS as an international standard, although this will take time. This is a tremendous leap from previous years, when just 54% and 59% in 2014 and 2013 respectively expected AIFMD to achieve that level of brand status. AIFMD becoming an international brand 32.3% 12.9% 35.5% Yes, it is already Yes, within the next year Yes, within next 5 years Yes, but not until the passport is extended No So while the overwhelming majority of respondents believe that AIFMD will ultimately come to rival UCITS as an international standard, the majority think that this will take time. Less than a fifth (19%) think that this will happen within a year; 35% think it will be in the next five years and a further 32% don t believe it will happen until the passport is extended. There is a great deal of discussion in the industry around the relative positioning between AIFMD and UCITS. The UCITS brand is the main European framework for retail investors, but over the years has been used by institutional investors and, in the absence of another regulated vehicle, its structure has been extended to cater for alternative strategies. Do respondents expect to see a growth in AIFs distributed to retail investors? 17.7% 12.9% 5 Strongly agree Partly agree Partly disagree Strongly disagree The boundaries between AIFMD and UCITS remain blurred and there will no doubt continue to be some degree of overlap. Longer term however, AIFMD, with its capacity to offer more flexibility on alternative fund structures, may take some of the flows that would previously have been shoe-horned into UCITS, particularly as UCITS V and VI tighten up the rules on eligible assets. CONVERGING WORLDS As well as blurring of boundaries between the regulations of the traditional and alternative worlds, the convergence between traditional and alternative funds continues to gain momentum. This year 89% of respondents agree it will continue. Convergence of traditional and alternatives Agree Disagree 9.7% 18.0% 10.9% 7.8% 3.3% 6.3% 5.9% % 78.7% 82.8% 86.3% This is a significant increase from previous years, when 79% (2014), 83% (2013) and 86% (2012) of respondents agreed. AIFMD has been a catalyst for this convergence. Convergence looks set to continue to demand attention of fund managers and their service providers, against the backdrop of an increasingly institutional investor base, an evolving regulatory landscape and increasing competition for capital. However, with its foundations now in place, AIFMD offers a viable alternative for regulated alternative structures within the EU, and has the capacity to offer more flexibility on alternative products. While originally addressed to professional investors, AIFMD also has capacity to target the retail sector. Under AIFMD, EU member states can permit the sale of alternative products to the retail sector, and 69% of respondents expect to see a growth in AIFs distributed to retail investors. MULTIFONDS Convergence and the impact of AIFMD survey 8

10 Multifonds and AIFMD At Multifonds, we work closely with our clients to assess the impact of regulatory initiatives. AIFMD has been a real catalyst for the convergence of alternative and traditional funds. Over the years the Multifonds platform has already had to cater for a wider range of asset types not just equities and fixed income, but an ever-increasing variety of derivatives - traded or OTCs. We have extended our capabilities in an innovative way to service long-only requirements as well as alternatives functionality like asset class coverage, performance fees, equalization, series of shares and partnership accounting. Over the last few years, we have seen the numbers of alternative funds on our platform grow as our clients have leveraged the platform for both hybrid structures and alternative funds. From a system perspective, having everything sitting on one platform enables the client to extract the one data set from one system rather than having to figure out how to marry multiple systems together and aggregate the resulting data. Approximately 60% of AIFMD reporting data originates from fund administration systems, so clients using our platform across function and fund types will be able to extract the majority of the data from one source. Providing efficient global investor services processing across fund types is key, and at Multifonds we work in partnership with our clients to help them achieve their goals. Keith Hale is Executive Vice President, Client and Business Development with global responsibility for client management and new business development across all products. Keith has more than 20 years experience in the investment industry, working on more than 50 projects with more than 30 leading buy-side, sell-side and asset servicing clients. T E Sern Tham is Global Head of Product Strategy responsible for Multifonds product roadmap and delivery across all asset classes and jurisdictions, including coverage of both strategic and regulatory driven enhancements. Sern has 15 years of experience in the wholesale banking and investment industry. He was previously Director of Strategy and Execution for Omnium (formerly Citadel Solutions) through its inception and business build, and was also a senior manager at McKinsey and Company, Inc. T E 9 MULTIFONDS Convergence and the impact of AIFMD survey

11 Respondent profile $20 trn total AUA $16 trn total AUM 62 survey respondents This survey, part 4 in the series, was carried out in March-May 2015 and received 62 responses from the global fund administration industry, including global custodians/ fund administrators (31%), asset managers (29%), third-party administrators (18%) with the remainder from other organizations, including vendors, consultants, lawyers, suppliers and management consultancies. The fund administrators collectively service assets totaling $20trn, and the asset managers collectively manage assets totaling $16trn. Respondents service a mix of both traditional and alternative funds, including hedge funds, commodities, private equity, real estate, long-only/ mutual funds and unit trusts. 10% of administrator respondents were from organizations with AUA between $1 and $20bn; 10% from $20 to $100bn; 32% from $100 to $500bn; and 39% from over $500bn. The remaining 10% were from smaller organizations with less than $1bn or specified not applicable. Value of funds administered (AUA) 38.7% 9.7% 9.7% 9.7% 32.3% Between $1bn and $20bn Between $20bn and $100bn Between $100bn and $500bn More than $500bn Not applicable Of the asset manager respondents, 44% were from organizations with AUM less than $1bn, 28% between $1bn and $20bn; 6% from $20bn to $100bn; 17% from $100bn to $500bn; and 6% from over $500bn. Value of funds managed (AUM) 5.6% 16.7% 27.8% 5.6% 44.4% Less than $1bn Between $1bn and $20bn Between $20bn and $100bn Between $100bn and $500bn More than $500bn Respondents were based in Canada, Denmark, France, Germany, Hong Kong, India, Ireland, Malta, Netherlands, Sweden, Switzerland, UK and USA. Note: 39% of the respondents are Multifonds clients. MULTIFONDS Convergence and the impact of AIFMD survey 10

12 Multifonds recent industry recognition GLOBAL Global Custodian Awards for Excellence Best Transfer Agency Platform 2014 Best Provider for Fund Administrators 2013 Banking Technology Readers Choice Awards Best Post Trade Processing Product/Service 2014 & 2012 Waters Buy-Side Technology Awards Best Buy-Side Portfolio Accounting Platform 2012 EMEA Custody Risk European Awards Post Trade Technology Vendor of the Year 2014 & 2013 Funds Europe Awards Technology & Trading Provider of the Year: Back Office 2012 AMERICAS Custody Risk Americas Awards Post Trade Technology Vendor of the Year 2015 & 2014 Waters Rankings Awards Best Accounting System Provider 2014 ABOUT MULTIFONDS Multifonds, a Temenos company, is the award winning investment software provider for fund accounting, portfolio accounting and investor servicing and transfer agency on a single platform. Today more than $5 trillion in assets for both traditional and alternative funds are processed on Multifonds in more than 30 jurisdictions for the world s leading global custodians, third-party administrators, insurance companies and asset managers. Temenos Group AG (SIX: TEMN) is a market leading software provider, partnering with 2,000 financial institutions including 38 of the top 50 banks to transform their businesses and stay ahead of a changing marketplace. Multifonds offices: US (Boston, New York), Canada, France, UK, Ireland, Germany, Switzerland, Luxembourg, India, Hong Kong and Singapore.