Management companies target Europe with Ucits IV
One year after the entrance into force of the directive, the KIID remains its most visible consequence.
Good news, but not a revolution. That is how the majority of asset management companies view the Ucits IV directive, which entered into force on 1st July 2011. "It improves the functioning of the single market in UCITS in Europe, by making it easier for asset management companies to export their products, explains Pierre Bollon, the Chief Executive of the Association française de la gestion financière (AFG), the French investment funds and asset managers trade association, while continuing to protect investors thanks to the KIID." The key investor information document (KIID) is the main concrete consequence of Ucits IV, since it is now compulsory for all asset management companies. Most of the other new elements introduced by the directive are optional opportunities, which asset management companies may or may not implement depending on their strategy.
Since 1st July 2011, new Ucits-compliant funds must specify the fund’s main characteristics in a KIID, a document which has been harmonised at European level. However, existing products, and therein lies the difficulty, must also replace their old simplified prospectus with a KIID. In France, asset management companies have been given a grace period and have until 30 June 2012 to publish KIIDs for all their product ranges. This is a mammoth task for asset management companies which sometimes have to produce dozens of KIIDs for each product, depending on the number of countries in which it is distributed and the number of units.
Adapting the information systems
"We had to adapt our production methods to accommodate the switch from a prospectus to the KIID. This involved considerable work on our information systems", says Nicolas Calcoen, Head of Strategy and Development at Amundi. Like many asset management companies, Amundi has chosen to implement the changeover to the KIID gradually since July 2011. "Almost 80 % of our KIIDs are ready and the majority of them have already been distributed, out of a total of 1,700 KIIDs (excluding employee savings plans), and more than 7,000 translations. We have advanced by product range", adds Nicolas Calcoen. BNP Paribas IP has chosen, on the contrary, to wait until a few months before the deadline to publish its KIIDs. "We are ready. All the KIIDs will be produced and put online by 30 June", affirms Marc Raynaud, Head of Global Funds Solutions at BNP Paribas IP, which will have to distribute 23,000 KIIDs in some thirty languages. It is noteworthy that Carmignac Gestion has already fully implemented the changeover to KIIDs. "In Germany, all existing funds had to adopt the KIID from 1st July 2011. We followed the German calendar by publishing all our KIIDs from that date, with the help of an outside service provider, F2C", notes Eric Le Coz, Deputy CEO of Carmignac Gestion.
Whether it is produced in-house or its production is entrusted to an outside service provider, such as the fund administrator, the KIID represents a significant cost for asset management companies. Although it is difficult to identify accurately all the cost components, the most significant budget headings include in particular adapting information systems, transforming the prospectus into a KIID, calculating new indicators such as the SRRI (Synthetic Risk and Reward Indicator), monitoring, changing reporting processes, etc. The cost of producing a KIID via an outside service provider is estimated at between 200 euros and 1,500 euros, without forgetting of course the in-house development time. "The KIID represents a far from negligible cost for asset management companies. However, everyone agrees that it constitutes a step forward for both asset management companies and clients, since it means that funds can be compared on the same basis across Europe", confirms Pierre Bollon.
The cost has been spread over several years. "The KIID project began in February 2011 for distribution between the end of 2011 and June 2012, i.e. a workload spread over 18 months", explains Thierry Goudin, Head of Marketing and Customer Support at Groupama Asset Management. Moreover, the KIID also has an annual maintenance cost, for example the data have to be updated every year and even twice a year for funds whose fiscal year does not end on 31 December.
Over and above the KIID, French asset management companies unanimously approve of the European fund passport and the resultant simplified, abridged authorisation procedure for funds in another country. Under the new procedure, the regulator of the fund’s country of origin notifies directly the regulator in the host country. "It now takes not more than ten days to obtain the notification in a new country, compared with between two weeks and two months previously depending on the circumstances. This is a definite step forward for all asset management companies that distribute their products throughout Europe", says Marc Raynaud.
Moreover, this new system enables asset management companies to launch a fund almost simultaneously throughout Europe. "The simplification of the distribution authorisation procedure enables us to roll out funds very rapidly in different countries, for example to take advantage of an investment opportunity. This is a real advantage and it works well: we tested it in July 2011", recounts Benoît Durand, Head of International Client Services at Edmond de Rothschild Asset Management (Edram). Numerous French asset management companies have already taken advantage of this new system and they are all enthusiastic about it. They do however have one regret: this accelerated procedure applies only to a fund’s initial authorisation. In the case of a change to the approval, the traditional procedure applies, with this time a longer timeframe.
On the other hand, the European passport system for asset management companies, introduced by the Ucits IV directive, has not yet been tested by asset managers. It is now possible for a French asset management company to launch local funds in another State in the European Economic Area without having to set up a local asset management company. "We welcome the creation of the European passport. Some of our members are considering implementing it, but that does not apply to the majority of asset management companies", notes Pierre Bollon. A pioneer in this area, Groupama Asset Management is giving very serious consideration to this possibility for its activity in Luxembourg. "We currently have a self-managed Sicav in Luxembourg since this system is less onerous than a fully-fledged asset management company. Thanks to the European passport, we could manage the Sicav directly from France within a matter of months, which would be more in keeping with client expectations, in terms of governance, than a self-managed Sicav", notes Thierry Goudin.
With the same aim of rationalisation, the Ucits IV directive provides for the possibility to merge funds from two different Member States. However, there are operational and tax obstacles to such cross-border mergers. "There is no harmonisation of the fiscal treatment of such operations. In Belgium, for example, if a fund is absorbed the client is liable to capital gains tax, observes Marc Raynaud. On the other hand, there are no difficulties in implementing this type of operation between France and Luxembourg, but there is no reason to do so because our product ranges are carefully segmented, without any real duplication." Similarly, asset management companies are, for the time being, adopting a wait-and-see attitude as regards the creation of cross-border master-feeder funds, also introduced by the Ucits IV directive. "Our strategy consists in distributing funds governed by French law throughout Europe and beyond. Therefore, at the current time, we do not need cross-border master-feeder funds, comments Benoît Durand. But we are keeping an open mind, since it could be useful if a European client wanted to invest in a local fund rather than in a French fund."
It is the same wait-and-see policy at Amundi: "The Ucits IV directive opens up new ways of rationalising product ranges. We are currently weighing up what is possible and what is worth doing. These are strategic decisions which have far-reaching operational consequences", stresses Nicolas Calcoen. While being an additional regulation, Ucits IV therefore offers asset management companies numerous opportunities which they are free to implement gradually. "The Ucits format has become a global standard, since it provides operational and regulatory certainty. Ucits IV strengthens this, but we must be careful not to stifle it with new constraints", warns Eric Le Coz of Carmignac Gestion, since after Ucits IV, Ucits V is already in the pipeline. On the table: harmonisation of the rules on custodian banks, managers’ remuneration and the sanctions of regulators.