Benefit treats
26 November 2014
CACEIS executive Pascal Hernalsteen unpacks the servicing needs of private equity and real estate fund managers
Image: Shutterstock
Private equity and real estate fund management companies operating in a number of European countries often work with a single depository operating in key jurisdictions for alternative investment funds. Engaging a leading depository bank, with offices in Europe, America and Asia, which provides support to global fund managers, from the fund’s inception and throughout its lifecycle, can significantly benefit managers.
Private equity, real estate and European market distribution
The Alternative Investment Funds Management Directive (AIFMD) stipulates that alternative investment fund managers, as well as alternative investment funds that are domiciled outside of the EU and therefore not directly governed by AIFMD, must register in an EU member state to benefit from the new private placement regime in Europe, which comes into force in 2018. Several countries, including Germany and Denmark, already require non-EU domiciled funds to register with the local regulator in order to be distributed.
Under these regulations, alternative investment funds domiciled outside of Europe must appoint a depository either in a European member state or in the country where the fund is domiciled. For instance, a US fund manager, looking to market its funds to German investors, could select a European depository to obtain the necessary regulatory approval for distribution locally. Non-EU fund managers will therefore become more reliant on suitable partners.
In Germany, the new investment guideline in Chapter 330 of the German Capital Investment Act (KAGB) requires managers to select a depository. German asset managers’ initial reluctance to implement AIFMD has faded as the benefits of the new standards, which have a distinct advantage in attracting investor money, became apparent. Due to the new set-up, many Germany-based issuers, asset managers and institutional investors reconsidered outsourcing tasks outside their core competences to external partners. And an external partner needs to offer broad know-how across all types of assets and the ability to handle the specifics of closed-end private equity real estate funds.
In July 2013, Luxembourg also modified its regulatory framework by introducing a new ‘carried interest’ law, enhancing the simple limited partnership structure (Société et Commandite Simple or SCS), and introducing the special limited partnership structure (société et commandite spécial or SCSp), which is directly inspired by the US/UK-style ‘limited partnership’. The new legal framework for both the SCS and SCSp structures permits greater flexibility while increasing the level of asset security.
Furthermore, Luxembourg enables alternative investment fund managers to set up a highly flexible fund vehicle that is tailored to private equity and real estate investment strategies. It is one of Europe’s leading jurisdictions for private equity and real estate fund domiciling and servicing, with a highly skilled and multilingual workforce.
Ireland, is best known as the domicile of choice for North American and UK hedge funds, however, the Irish authorities took pre-emptive steps to update Irish alternative investment fund structures before AIFMD was implemented with many enhancements to facilitate private equity and real estate investment in particular. Private equity and real estate are emerging industries in Ireland, but regulatory changes may see their size increase, and large asset servicing companies should provide a fully-fledged office in Ireland to serve overseas managers’ demands.
Principal benefits of engaging in asset servicing partners
Along with a multi-jurisdictional presence, asset servicing companies can support private equity fund managers throughout the investment lifecycle, from initial investment through to exit and collecting revenues. By delegating day-to-day investment monitoring, cash management and investor relations support to a third party, private equity fund managers can streamline their operations while reducing risk and administrative costs and improving investor communication and relationships. For institutional investors, investments in private equity funds increasingly take the form of a series of cash flows dependent on the lifecycle of the investments, so managing capital calls and distributions is paramount.
Other functions are just as important, such as look-through of un-listed assets. This meets several aims: obtaining precise information for investor accounting and analysis of portfolio performance and risk. By providing these services, an experienced asset servicing provider enables managers to improve compliance with local regulations. A provider holds a large quantity of data, enabling managers to better monitor portfolios and performance. Third-party services to private equity funds enable fund managers and institutional investors to meet their needs more effectively in terms of transparency, risk and performance monitoring, while building a trust-based relationship with a partner.
The CACEIS dedicated private equity and real estate team is composed of private equity, real estate and debt specialists in Germany, France, Ireland, Italy, Luxembourg, Switzerland, the US and Canada, and services more than €96 billion in assets under depository. The teams have gained extensive expertise in this industry over the past decades, providing effective support to managers that invest directly or indirectly via local vehicles. Our alternative investment servicing business is based on a powerful servicing platform that combines cutting edge technology and outsourcing services to support the specific administrative needs of private equity and real estate investment companies.
Private equity, real estate and European market distribution
The Alternative Investment Funds Management Directive (AIFMD) stipulates that alternative investment fund managers, as well as alternative investment funds that are domiciled outside of the EU and therefore not directly governed by AIFMD, must register in an EU member state to benefit from the new private placement regime in Europe, which comes into force in 2018. Several countries, including Germany and Denmark, already require non-EU domiciled funds to register with the local regulator in order to be distributed.
Under these regulations, alternative investment funds domiciled outside of Europe must appoint a depository either in a European member state or in the country where the fund is domiciled. For instance, a US fund manager, looking to market its funds to German investors, could select a European depository to obtain the necessary regulatory approval for distribution locally. Non-EU fund managers will therefore become more reliant on suitable partners.
In Germany, the new investment guideline in Chapter 330 of the German Capital Investment Act (KAGB) requires managers to select a depository. German asset managers’ initial reluctance to implement AIFMD has faded as the benefits of the new standards, which have a distinct advantage in attracting investor money, became apparent. Due to the new set-up, many Germany-based issuers, asset managers and institutional investors reconsidered outsourcing tasks outside their core competences to external partners. And an external partner needs to offer broad know-how across all types of assets and the ability to handle the specifics of closed-end private equity real estate funds.
In July 2013, Luxembourg also modified its regulatory framework by introducing a new ‘carried interest’ law, enhancing the simple limited partnership structure (Société et Commandite Simple or SCS), and introducing the special limited partnership structure (société et commandite spécial or SCSp), which is directly inspired by the US/UK-style ‘limited partnership’. The new legal framework for both the SCS and SCSp structures permits greater flexibility while increasing the level of asset security.
Furthermore, Luxembourg enables alternative investment fund managers to set up a highly flexible fund vehicle that is tailored to private equity and real estate investment strategies. It is one of Europe’s leading jurisdictions for private equity and real estate fund domiciling and servicing, with a highly skilled and multilingual workforce.
Ireland, is best known as the domicile of choice for North American and UK hedge funds, however, the Irish authorities took pre-emptive steps to update Irish alternative investment fund structures before AIFMD was implemented with many enhancements to facilitate private equity and real estate investment in particular. Private equity and real estate are emerging industries in Ireland, but regulatory changes may see their size increase, and large asset servicing companies should provide a fully-fledged office in Ireland to serve overseas managers’ demands.
Principal benefits of engaging in asset servicing partners
Along with a multi-jurisdictional presence, asset servicing companies can support private equity fund managers throughout the investment lifecycle, from initial investment through to exit and collecting revenues. By delegating day-to-day investment monitoring, cash management and investor relations support to a third party, private equity fund managers can streamline their operations while reducing risk and administrative costs and improving investor communication and relationships. For institutional investors, investments in private equity funds increasingly take the form of a series of cash flows dependent on the lifecycle of the investments, so managing capital calls and distributions is paramount.
Other functions are just as important, such as look-through of un-listed assets. This meets several aims: obtaining precise information for investor accounting and analysis of portfolio performance and risk. By providing these services, an experienced asset servicing provider enables managers to improve compliance with local regulations. A provider holds a large quantity of data, enabling managers to better monitor portfolios and performance. Third-party services to private equity funds enable fund managers and institutional investors to meet their needs more effectively in terms of transparency, risk and performance monitoring, while building a trust-based relationship with a partner.
The CACEIS dedicated private equity and real estate team is composed of private equity, real estate and debt specialists in Germany, France, Ireland, Italy, Luxembourg, Switzerland, the US and Canada, and services more than €96 billion in assets under depository. The teams have gained extensive expertise in this industry over the past decades, providing effective support to managers that invest directly or indirectly via local vehicles. Our alternative investment servicing business is based on a powerful servicing platform that combines cutting edge technology and outsourcing services to support the specific administrative needs of private equity and real estate investment companies.
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