Welcome to the latest edition of Osborne Clarke's Funds Update.
We hope that you find it interesting. If you would like to discuss any of the content, or have a particular subject that you would like us to cover in a future edition, please let one of us know. Our contact details are set out below.
Reform of UK limited partnership law | government response to consultation
Anyone forming limited partnerships in the UK should consider the government's response in December 2018 to the consultation on the reform of UK limited partnership law (including private fund limited partnerships). The government has tried to strike a balance in ensuring that UKLPs are used for legitimate purposes without compromising the attractiveness of the UKLP as a vehicle for private investment funds, although some of the proposals could result in fund managers opting to use vehicles in other jurisdictions.
The proposed actions include maintaining a connection with the UK (demonstrating an ongoing connection to remain registered as a UKLP), additional reporting requirements, a new power for the Registrar to strike of UKLPs, and anti-money laundering supervision. However, there is still no clear timeline.
Sustainability risks and factors | ESMA Consultations (MiFID II, AIFMD, UCITS)
Under European Commission's Sustainable Action Plan, three separate consultations were launched by ESMA in December 2018 seeking industry views on the integration of sustainability risks and factors into each of the relevant directives. The key focus is on environmental, social and good governance with regards to investment firms and investment funds. ESMA has proposed a high-level, principle-based approach to integrate sustainability risks within the requirements on general organisation and risk management.
These proposals represent just the beginning of a one-way shift driven by a largescale European project with sustainability considerations at the core. Investment firms and funds can expect further change and consultations as the European Commission's wider Sustainability Plan matures.
Five things asset managers and institutional investors need to know about cost transparency in 2019
While disclosure of charges is regulated and standardised for retail investors, institutional investors have found it more difficult to obtain and analyse cost data from asset managers or accurately compare costs across the market. A new partnership initiative has been launched by industry bodies off the back of the recommendations made by the Institutional Disclosure Working Group. The 'Cost Transparency Initiative' was launched in November 2018 with a view to driving enhanced cost transparency. One of the main changes currently being piloted is the introduction of various templates, including a specific template for private equity. These are intended to be voluntary, but if uptake is poor, the regulator could move to make the templates mandatory.
Cost transparency will continue to be an industry-wide 'hot topic' for 2019. This is a complex area that institutional investors and asset managers need to get to grips with.
Love's labour's lost? Tax loss restriction rules and management fees: where are we now?
Where do things stand on carried forward losses and management fee structures in UK funds? The rules governing the use of tax losses for UK corporation tax changed with effect from April 2017, introducing a restriction as to how companies can use carried forward losses that cannot be used in the accounting period in which they are generated.
We consider the application of this restriction and what this means, as well as what the alternative is.
AIFMD Review | Has AIFMD provided an internal market for EU and non-EU AIFMs?
A major review of the Alternative Investment Fund Managers Directive by the European Commission has concluded that the directive has played "a major role" in helping to create an internal market for AIFs, but that difficulties remain and some of AIFMD's provisions may run counter to its aims. The difficulties arise from either the detail of the provisions or their application, and whether they have had a particular impact in relation to the analysis of the effectiveness and efficiency of the directive.
Although the Report is broadly positive in relation to the major purpose of the AIFMD, the results demonstrate that certain areas, such as marketing passports, remain problematic.
AIFMD Review | Areas of weakness identified with current regime
In this article, we look more closely at some of the specific findings of the AIFMD Review, particularly those identifying certain weaknesses in the AIFMD regime.
A number of these issues have already been incorporated into ESMA's work plan for 2019, and there are already legislative proposals in the pipeline. Another possibility for the future is that some elements could be remedied by way of an 'AIFMD II' regime. But one aspect that looks like it will remain, for the time being at least, is the national private placement regime.