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Collective Investment Schemes Flashcards

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1
Q

What is an investment fund?

A

A common pool of funds contributed by investors and invested in accordance to a predetermined investment policy.

Investments are held in a trust of which the investors are the joint beneficial owners.

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2
Q

What are the two main forms of asset management?

A
  • Individual asset management
  • Collective asset management
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3
Q

What is legal segregation regime in collective investment schemes?

A

Legal segregation of each fund from:
* Any assets/liabilities of the management company
* Any other fund managed by the same management company
* Assets of each investor (unit-holder)

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4
Q

What are the benefits of collective investment?

A
  • Economies of scale
  • Diversification
  • Professionality
  • Tax deferral
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5
Q

How can investment funds be classified based on capital structure?

A
  • Open-ended Funds
  • Closed-ended Funds
  • Interval Funds
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6
Q

What characterizes open-ended funds?

A

No fixed maturity date and accept continuous sale and repurchase requests.

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7
Q

What is the aim of debt funds?

A

To provide regular income by investing in short and long term debt instruments.

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8
Q

What is the aim of equity funds?

A

To provide growth and capital appreciation over the long term by investing in equity securities.

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9
Q

What defines hybrid funds?

A

Invest in a combination of equity and debt securities, aiming for both income and capital appreciation.

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10
Q

What does active management involve?

A

Choosing investments based on analysis to outperform a benchmark.

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11
Q

What is passive management?

A

Aims to perform in line with or ‘track’ a benchmark index without active selection of stocks.

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12
Q

What is a Feeder UCITS?

A

A UCITS that invests at least 85% of its assets in one other UCITS.

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13
Q

What is the main purpose of the UCITS directive?

A

To ensure the coordination of laws regarding collective investment in transferable securities.

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14
Q

What are eligible investments for UCITS according to Article 50(1)?

A
  • Transferable securities
  • Money market instruments
  • Recently issued transferable securities
  • Units of UCITS or other collective investment undertakings
  • Financial derivative instruments
  • 12 mo deposits with credit institutions
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15
Q

What are the limitations on UCITS investments?

A
  • Cannot invest in property or real estate
  • Cannot invest in commodities
  • Cannot invest in private equity
  • 10% concentratiion limit
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16
Q

What is the role of a depositary in investment funds?

A

An institution entrusted with the safekeeping of assets and monitoring functions.

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17
Q

What is the AIFMD?

A

The Alternative Investment Fund Managers Directive, which regulates managers of alternative investment funds.

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18
Q

What types of funds fall under AIF?

A
  • Hedge funds
  • Private equity funds
  • Real estate funds
  • Other institutional funds
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19
Q

What is the key difference between UCITS and AIF?

A

UCITS are subject to prudential requirements, while AIFs are not.

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20
Q

What is the minimum corporate capital requirement for management companies under UCITS?

A

Must meet minimum corporate capital and own funds requirements.

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21
Q

What is the significance of dual supervision in UCITS?

A

It allows harmonised funds to market their units across all EU Member States subject to compliance with national laws.

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22
Q

What is the typical investment liquidity requirement for UCITS?

A

No more than 10% of assets in investments that are not listed.

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23
Q

Fill in the blank: AIFs are collective investment undertakings that raise capital from a number of investors, with a view to investing it in accordance with a _______.

A

[defined investment policy]

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24
Q

What is the primary function of AIFMs?

A

To raise capital from investors and invest it according to a defined investment policy for their benefit

AIFM stands for Alternative Investment Fund Managers.

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25
Which entities are exempt from the Directive according to Article 2(3)?
* Holding companies * Institutions for occupational retirement provision * Supranational institutions * National, regional, and local governments * Employee participation schemes * Securitisation special purpose entities
26
What is the threshold for AIFMs to be partially exempt from certain regulations?
EUR 100 million for leveraged assets or EUR 500 million for unleveraged AIFs with no redemption rights for 5 years ## Footnote This applies to AIFMs managing portfolios linked by common management or control.
27
What is required for AIFMs with AUM exceeding EUR 100 million to operate in the EU?
Initial authorization from member state regulators ## Footnote AUM stands for Assets Under Management.
28
What conditions must be met for the authorization of an AIFM according to Article 8?
* The AIFM can meet the conditions of the Directive * The AIFM has sufficient initial capital and own funds
29
What are the minimum capital requirements for AIFMs with AUM?
Minimum of EUR 125,000 plus 0.02% of any AUM over EUR 250 million, capped at EUR 10 million
30
What must AIFMs do to manage conflicts of interest according to Article 14?
Identify, manage, monitor, and disclose conflicts of interest
31
True or False: AIFMs are required to conduct risk management separately from portfolio management.
True
32
What is the function of a depositary for an AIF?
To monitor cash flows and ensure proper management of the AIF's assets | The funds from each AIF kept with a single depository ## Footnote The depositary must be a credit institution, an investment firm, or another regulated institution.
33
What defines a loan-originating AIF?
An AIF whose investment strategy mainly originates loans or whose originated loans represent at least 50% of its net asset value
34
What is the purpose of the marketing passport for AIFMs?
To market units or shares of EU AIFs to professional investors across EU Member States
35
What are the investment policy requirements for ELTIFs? | European Long-term Investment Funds
* Invest at least 70% in eligible assets * Only trade up to 30% in non-long-term investments
36
What types of projects do ELTIFs target?
* Unlisted companies * Debt instruments with low liquidity * Real assets * SMEs with capitalizations up to €500 million
37
What must retail investors be informed about regarding ELTIFs?
Investment limits and redemption rights
38
What are the requirements for a fund to qualify for the EuVECA label? | European Venture Capital Funds
* Invest 70% in young and innovative companies * Provide equity or quasi-equity finance * Not use leverage
39
What must a fund do to qualify for EuVECA and market across the EU?
* 70% of capital suporting young and innovative companies * equity/quasi-equity finance to the young and innovative SMES * no leverge ## Footnote This is a key requirement for qualifying for the EuVECA label.
40
What type of finance must EuVECA funds provide to SMEs?
Equity or quasi-equity finance ## Footnote This is essential for supporting small and medium enterprises.
41
True or False: EuVECA funds are allowed to use leverage.
False ## Footnote The regulation stipulates that these funds must not be indebted.
42
What must managers of EuVECA funds prove to qualify for the EuVECA label?
They must adhere to uniform quality criteria ## Footnote This includes how they organize their activities and inform investors.
43
Who can invest in EuVECA funds?
Professional investors and possibly high-net-worth individuals ## Footnote This regulation defines the eligible investor categories.
44
What is the primary aim of social businesses under the EuSEF framework? | European Social Entrepreneurship Funds
Address social objectives rather than maximizing profit ## Footnote This distinguishes social enterprises from traditional businesses.
45
What percentage of investments must EuSEF funds direct to social businesses?
At least 70% ## Footnote This is a requirement for funds marketing themselves as EuSEFs.
46
What are two problems faced by funds investing in social entrepreneurs?
* Costly and difficult to set up funds * Difficulty in identifying and comparing such funds ## Footnote These barriers can hinder investment in social enterprises.
47
What do Money Market Funds (MMFs) provide?
Short-term finance to financial institutions, corporations, and governments ## Footnote MMFs play a crucial role in the economy by diversifying credit risk.
48
List three benefits of Money Market Funds for investors.
* High degree of liquidity * Diversification * Stability of principal value invested ## Footnote These benefits make MMFs an attractive investment option.
49
What are the two main circumstances under which a prospectus is mandated?
* Public offer of securities * Admission of securities to trading on regulated markets ## Footnote These conditions determine the need for a prospectus.
50
What information must a prospectus provide to investors?
* Assets and liabilities * Profits and losses * Financial position and prospects of the issuer * Rights attaching to the securities * Reasons for issuance and its impact on the issuer ## Footnote This information is crucial for informed investment decisions.
51
What are 'qualified investors' as defined by MiFID II?
Professional investors either by default or upon request ## Footnote This classification affects the exemptions for public offers of securities.
52
Fill in the blank: The contents of the prospectus must be _______ to enable informed assessment.
necessary and material ## Footnote This ensures that investors have the essential information for decision-making.
53
True or False: The liability regime for prospectuses is entirely harmonized across EU member states.
False ## Footnote The liability regime remains largely national.
54
What is one key requirement for fund managers of EuSEF funds?
Demonstrate good conduct of the business ## Footnote This is crucial for maintaining investor trust and fund integrity.
55
What is a significant challenge for social entrepreneurship funds in attracting investors?
It can be costly and difficult to set up such funds ## Footnote This challenge can impede the growth of social businesses.
56
What is the structure of a prospectus according to the Level 2 Regulation?
* A table of contents * A summary * Risk factors * Information items from the Annexes ## Footnote These elements help organize the prospectus effectively.
57
What do MMFs typically serve as for corporations?
Short-term cash management tools ## Footnote Corporations use MMFs to manage excess cash efficiently.
58
What is the role of the National Competent Authority (NCA) in the prospectus regime?
Determines the approval and publication of the prospectus ## Footnote The NCA ensures compliance with the regulatory framework.
59
What is a UCITS
undertakings for collective investment in transferable securities (UCITS).
60
What is an AIF
Alternative Investment Funds
61
What activities cannot be carried out by the management company of a UCITS
engage in activities other than the management of a UCITS except: * additional management of other collective investment undertakings which are not covered, for which prudential supervision * portfolio investments in a client-by-client basis * non-core services
62
when is the re use of UCITS assets held by depositary permitted
1. for the account of the UCITS, 2. upon instruction of the relevant management company, 3. for the benefit of the UCITS and in the interest of the unit holders and 4. with a high-quality and liquid collateral.
63
In the AIF what is the management passport
Allows AIFM to manage AIF in another ms or establish a branch after notifying AIFM home regulator Requirements branch: * organization of the branch * address in home MS withdocs * name and contact information of managers
64
What must be included in the application for an ELTIF
* fund rules/instruments of incorporation * identity of the proposed manager * identity of the depositary * description of info givent to investors

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