The European Parliament voted to adopt the UCITS V Directive on 15 April 2014, settling any fears and uncertainties that political disagreement over the scope of the remuneration rules might scupper its approval.
UCITS V will come into closer alignment with the Alternative Investment Managers Directive (AIFMD), which was transposed into EU law last July to regulate the activities of European alternative fund managers. Michel Barnier, Internal Market and Services Commissioner of the European Commission, has emphasized the need to maintain the UCITS framework as a “gold standard for fund regulation globally”.
In a legal update from law firm Dechert’s Financial Services Practice it notes that the controversial suggestion to cap bonuses for asset management staff under UCITS V at a 1:1 ratio with their annual salary was voted down at the plenary session of the European Parliament. Under UCITS V, and consistent with AIFMD, UCITS management companies will be required to establish remuneration policies and practices “that are consistent with and promote sound and effective risk management”.
In addition, UCITS V empowers the European Securities and Markets Authority (“ESMA”) to issue guidelines on the scope of staff to be caught under the new remuneration rules and the application of the new remuneration principles for UCITS management companies. “The guidelines expected to be issued by ESMA in relation to remuneration policies under UCITS V will not be binding, however, financial regulators and market participants will be expected to comply on a ‘comply or explain’ basis,” says the Dechert legal update.
Under UCITS V, 50 per cent of any variable remuneration of UCITS management companies must consist of units of the UCITS concerned. During the negotiations, it had been strongly argued that variable remuneration should be in the form of shares of the management company or its parent company. This position was ultimately rejected as it was argued that this would have led to a situation where fund managers were rewarded for increasing profits of the management company rather than the value of the funds under their management.
Under the final text, 40 per cent of variable remuneration will be deferred for at least three years and 60 per cent will be deferred for very high bonuses.
The remuneration issue is a tricky one for US managers running UCITS vehicles as they are not allowed to invest in UCITS funds and cannot therefore acquire shares. As Dechert notes: “If a UCITS changed its constitutional documents to allow US persons to invest, this could result in extra legal and regulatory registration and compliance obligations for the fund and the investment manager, thereby increasing the costs borne by the UCITS. In any event, even if a UCITS changed its constitutional documents to allow US persons to invest, some fund managers might be ineligible to invest based on the fund’s investor criteria and investor criteria imposed by US securities laws. Finally, holding shares of UCITS structured as a corporate vehicle would result in negative tax ramifications for US fund managers who are US taxpayers.”
WisdomTree Investments, Inc. (NASDAQ: WETF), the world’s fifth largest US exchange-traded fund sponsor, announced this week that it had completed the acquisition of Boost ETP, a UK-based exchange-traded product ("ETP") provider. The acquisition signals WisdomTree’s expansion plans for Europe. WisdomTree will commence the previously announced build-out of a local European platform to offer a select range of UCITS ETFs under the WisdomTree brand and continue to manage and grow the Boost line up of short and leveraged fully collateralized ETPs under the Boost brand.
“We are excited to deepen and expand our offerings as the world’s eighth largest ETF sponsor and look forward to serving the European market,” said WisdomTree CEO and President Jonathan Steinberg.
Hector McNeil and Nik Bienkowski, founders of Boost and veterans of Europe’s ETF industry, will serve as Co-CEOs of WisdomTree Europe. McNeil and Bienkowski were quoted as saying: “We look forward to continuing to grow the Boost ETP family under WisdomTree and we are pleased to lead the platform for WisdomTree’s European ETF plans.”
Neuberger Berman Singapore Pte. Limited, part of Neuberger Berman Group LLC, this week announced the expansion of its fund platform in Asia reported the Jakarta Post. The firm has registered three UCITS funds for sale to the retail market in Singapore: the Neuberger Berman High Yield Bond Fund; Neuberger Berman US Multi-Cap Opportunities Fund; and Neuberger Berman Short Duration High Yield Bond Fund.
Neuberger Berman currently manages over USD21bn in assets for institutional and individual clients across its Ireland-based Neuberger Berman Investment Funds plc UCITS range. The firm also obtained authorization to sell 11 of its UCITS funds to individual investors in Hong Kong.
Nick Hoar, managing director and head of Asia Pacific for Neuberger Berman was quoted as saying: “We are very pleased to continue our expansion into Asia by offering some of our most popular funds to retail investors in Singapore. It is crucial that we are able to offer these investment strategies to address an increasingly global client demand.
“These funds represent some of our firm’s best ideas and we are excited to bring our portfolio managers’ experience and expertise to this market,” added Joseph Amato, president and chief investment officer of Neuberger Berman.