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Collective investment Schemes Flashcards

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1
Q

what are the 2 forms of asset managers?

A

Asset management can take two main forms:
➢Individual asset management (i.e. the management of a client’s
portfolio);
➢Collective asset management (i.e. the management of a fund of
pooled assets, in accordance with specific and agreed risk levels
and parameters)

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2
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 (the fund) of which the investors alone are the joint beneficial owners.
The fund is managed by a management company.

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3
Q

what is legal segregation regime?

A

Legal separation between the fund and
-Any asset/liability of the management company
-Any other fund managed by the management company
-the assets of each investor in the fund

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4
Q

What are the benefits of collective investment?

A

-Economies of scale (trading fixed costs distributed across large ticket investments)
-diversification
-access to professional management for retail investors
-tax deferral

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5
Q

in which ways can we categorize investment funds?

A

-capital structure–> close-ended fund/ open-ended fund/interval
-Objectives–> equity/debt/money market funds
-Styles–> active/passive management

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6
Q

which are the characteristics of funds categorized by capital structure?

A
  • open ended: have no fixed maturity, accept continuous sale and repurchase of units with capital injections based on NAV at the end of trading day. Unit cost therefore varies
  • Close ended: fixed maturity. only open at the start and then don’t accept further injections. Unit cost is therefore fixed
    -Interval funds: hybrid form, only open ended at certain time intervals
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7
Q

what are the objectives of equity, debt and hybrid funds?

A

equity: capital appreciation over long time
Debt: steady stream of income and CFs
Hybrid: a mix of the 2

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8
Q

what are the 2 types of active funds?

A

Top down–> aim to outperform a chosen benchmark over a period of time
Bottom up–> choose individual instruments by doing specific analysis

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9
Q

what are passive funds? what’s their pros and cons?

A

funds that simply track an index by buying its constituent securities

pros: actively managed funds often suck and underperform the index, no management fees

Cons: a lot of costs related to the rebalancing and adjusting of index composition

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10
Q

what is an investment company?

A

A company that invests in various funds and vehicles so as to allow investors to buy its shares and indirectly benefit from the performance of its portfolio.

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11
Q

how can investment companies be categorised?

A

Capital–> close ended/open ended
Manager–> Internal (BoD)/ external (management Company)

Multi fund/segment–> invest in various funds/ classes. each units distributes profits independently.

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12
Q

what are UCITS?

A

undertakings that invest funds raised from the public in transferable/liquid securities based on the principle of risk spreading. the units must be reedemable at values that do not deviate significantly from NAV at any time. (the fund must ensure the value of its units on the stock exchange correctly reflects NAV)

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13
Q

what are AIFs?

A

investment undertaking that invest capital from a pool of investors following a defined investment policy without requiring authorisation pursuant to UCITS directive. They are composed of ELTIFs, EuVECA, EuSEF.

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14
Q

what are differences between UCITS and AIFs?

A

Prudential requirements: only for UCITS to ensure NAV stability and liquidity.

EU passport: for all UCITS but only to largest AIFs

Retail investors: UCITS are accessible to all retail investors, AIFs only if agreed by the host country.

Capital structure: AIFs can be close and open ended, UCITS exclusively open ended.

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15
Q

Which are the instruments allowed to be purchased by UCITS?

A

Transferable securities/MM instruments: 1) they are traded on a Stock exchange or regulated market 2) have just been released and there is a written commitment to be listed on a SE/RM.

Units of other UCITS

Deposits up to 12 months

derivatives traded in RM or OTC (in some cases)

MM instruments: if not traded on RMs but are regulated to protect investors and savings (no more than 10% unlisted)

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16
Q

what CAN’T UCITS invest in?

A

Property or real estate (unless it is needed for operations)
Commodities, metals and certificates of possession of precious metals
Private equity
10% concentration limit

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17
Q

do management company require authorisation to operate?

A

yes, released by the home member state and valid in all others.

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18
Q

what are conditions to licensing for a management company?

A

-minimum corporate capital
-experience of managers
-a programme of activity setting out the management company’s organisational structure
-disclosure of qualified shareholders and the amount of each holding

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19
Q

what are the activties a management company can legally perform?

A

-management of UCITS.
-Individual portfolio management.
-Non-core services of advice/safekeeping and administration related to units of UCITS.
-Management of other collective investment undertakings not covered by UCITS directive for which the company is subject to prudential supervision.

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20
Q

what do UCITS have to do to market their units in other MSs after being authorized?

A

compliance with notification duties provided for
under UCITS Directive

-provide to investors of the Host state all info and documents required by local law using the state’s language and following the state’s procedures for delivery of such documents.

The UCITS notifies authorities of its home state that signal the intention to the ones of the Host state, after checking compliance with local requirements the UCITS is free to sell units.

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21
Q

what is a depositary? what criteria are needed to be one?

A

A depositary is a legal entity appointed to safeguard the assets of an investment fund, such as a UCITS or Alternative Investment Fund.

-registered office or established in the same MS of the investment/management company
-institution subject to prudential regulation and supervision

–> usually a bank

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22
Q

what are the rules on reutilisation of assets by depositary?

A

A UCITS must appoint a single depositary to safeguard fund assets. The depositary cannot reuse these assets for its own account,.
it can reuse only under strict conditions 1) only for the UCITS account, 2) on management’s instruction, 3) in investors’ interest, 4) and with high-quality collateral.

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23
Q

what are the duties of the depositary?

A

The depositary must ensure compliance with legal and fund rules of:

unit transactions (sale, issue, redemption, cancellation).

unit valuation

Follow management instructions, unless they breach legal or fund rules.

Confirm timely payments for fund transactions

fund income application

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24
Q

what is a feeder UCITS?

Study These Flashcards
A

a UCITS that invests 85% or more of its capital in One other UCITS (called the master UCITS)

25
are independent directors required for ucits? how about distribution requirements?
no and also no
26
how often should NAV be computed for UCITS?
minimum twice a month
27
are performance fees allowed in UCITS?
yes
28
Can UCITS use leverage?
yes, up to 10% of net assets for a limited time
29
Who does AIFMD apply to?
All EU AIFMs managing an AIF All non-EU AIFMs managing an EU AIF All non-EU AIFMs marketing AIFs in the EU, regardless of where the AIF is based
30
Who is exempt from AIFMD?
The AIFMD does not apply to: Holding companies Occupational retirement institutions Supranational bodies (e.g. IMF, central banks, World Bank) Public institutions managing pension funds Employee participation or saving schemes Securitisation SPVs
31
which AIFMs are eligible for partial exemption under AIFMD?
AIFMs are partially exempt if they manage: Leveraged portfolios with total assets not exceeding €100 million, or Unleveraged portfolios with total assets not exceeding €500 million, provided the AIFs have no redemption rights for 5 years.
32
What obligations apply to AIFMs under partial exemption?
They must comply only with registration, identification, and disclosure of investment strategies
33
what are the conditions for the authorisations of an AIFM
Management: They must be of good repute, sufficiently experienced, and their names must be notified to authorities. At least two full-time natural persons, domiciled in the EU, must be committed to running the AIFM. Shareholders must ensure sound and prudent management the AIFM’s head office and registered office must be in the same Member State. Capital requirement: AIFMs must hold at least €125,000, plus 0.02% of AUM exceeding €250 million, capped at €10 million total. Additionally they must hold additional capital or be insured against risk of professional negligence.
34
what are operational requirements for AIFMs
AIFMs must: Act honestly with skill, care, and diligence Act in the best interests of AIFs/investors Use proper resources and procedures to perform effectively Avoid and manage conflicts of interest, and disclose when needed Comply with all regulatory requirements Treat all AIF investors fairly
35
What are the remuneration requirements for AIFMs?
AIFMs must adopt remuneration policies for staff (including senior management and risk takers) whose activities impact AIF risk profiles. These policies must support sound and effective risk management and discourage excessive risk-taking that conflicts with the AIF’s risk profile or rules.
36
What types of conflicts of interest must AIFMs identify and manage?
AIFMs must identify conflicts arising between: The AIFM (or its staff/related parties) and the AIF or its investors One AIF (or its investors) and another AIF (or its investors) An AIF (or its investors) and another client of the AIFM An AIF (or its investors) and a UCITS managed by the AIFM Two clients of the AIFM
37
What must an AIFM do when managing an AIF at a third party’s initiative?
38
What are the AIFM’s obligations for risk management?
Risk management must be functionally separate from portfolio management, unless safeguards exist. AIFMs must review risk systems annually, perform due diligence to manage investment risks, and set a suitable risk profile and leverage limit for each AIF.
39
What are AIFMs required to do for liquidity management?
(FOR FUNDS WHICH ARE NOT CLOSE ENDED) AIFMs must use a liquidity management system and procedures to monitor liquidity risk and ensure the AIF's investments match its obligations. They must also regularly conduct stress tests under normal and exceptional conditions to assess and manage liquidity risk.
40
What are AIFMs’ obligations for valuation of AIF assets?
AIFMs must ensure an independent valuation of AIF assets. the NAV per unit/share is calculated at least once a year.
41
What are the AIFMD rules on appointing a depositary?
Each AIF must have a single depositary, appointed by written contract that governs information sharing and duties.
42
Who can be a depositary for AIFMD and what are their duties?
A depositary must be a credit institution, investment firm, or similar regulated entity duties include monitoring CFs, ensuring reception of payments related to transactions in fund units, and ensuring these payments are booked in an account under the name of the AIF, in the name of the AIFM acting on behalf of the AIF or in the name of the depositary ancting on behalf of the AIF.
43
What is a loan-originating AIF?
It’s an AIF whose main strategy is to originate loans, or where originated loans make up at least 50% of its net asset value.
44
When can a loan-originating AIF be open-ended?
Only if the AIFM proves to regulators that its liquidity risk management is compatible with the AIF’s investment strategy and redemption policy.
45
What is the marketing passport under AIFMD?
a document that allows authorised EU AIFMs to market units/shares of any EU AIF they manage to professional investors in their home Member State and in other EU Member States. For feeder funds, the master AIF must also be managed by an authorised AIFM.
46
What does the managing passport allow under AIFMD?
The managing passport allows an EU AIFM to manage EU AIFs located in another Member State, either directly or by establishing a branch there. The AIFM must notify its home regulator, provide the name of the target Member State, describe the services it will offer, and identify the AIFs it intends to manage.
47
What additional information is required when an AIFM sets up a branch under the managing passport?
The AIFM must provide: The organisational structure of the branch The address in the home Member State of the AIF for document access The names and contact details of persons responsible for managing the branch
48
can EU AIFMs manage non eu AIFs non marketed within the union?
yes
49
Can an EU AIFM market the shares of non EU AIFs it manages?
yes, but exclusively to professional investors
50
What types of assets do ELTIFs invest in?
Unlisted companies Illiquid debt instruments Real assets (e.g., gold, oil, property) SMEs (market cap up to €500 million) that are listed on regulated markets.
51
What is required to obtain ELTIF authorisation?
The application must include: Fund rules Identity and experience of the proposed manager Identity of the depositary institution Information provided to investors, including complaint-handling procedures
52
What are the key investment rules for ELTIFs?
Must invest at least 70% of capital in eligible assets May invest up to 30% in other assets Eligible assets include: Real assets worth over €10 million that provide economic/social value Commercial property or housing supporting EU policy goals (e.g. sustainability, cohesion)
53
What investor protection rules apply to ELTIFs?
Investment limit: Retail investors with portfolios under €500,000 can invest no more than 10% of it in ELTIFs. Redemption rights: ELTIFs must, under certain conditions, allow early redemption, with terms clearly disclosed in fund rules. Long-term suitability: If the ELTIF lasts over 10 years, the manager/distributor must warn in writing that it may not suit investors needing liquidity or short-term access.
54
What are the requirements to qualify for the EuVECA label?
A fund must: Invest at least 70% of capital in young and innovative companies Provide equity or quasi-equity finance Not use leverage, meaning it doesn’t borrow beyond investor commitments
55
Who can invest in EuVECA funds?
Only professional investors and selected categories of high-net-worth individuals, due to the higher risk of venture capital investing.
56
what are issues faced bu EuSEFs?
-problems attracting investors (they are less attractive from a return standpoint) -problems in recognizing their identity as social funds
57
What are the benefits of the EuSEF label?
The label: Makes it easier for investors to recognize and choose social entrepreneurship funds Allows fund managers to raise capital with fewer costs and hurdles
58
what are the requirememts to obtain the EuSEF label?
1)Fund must provide standardized disclosures on: -The fund’s social objectives -The social businesses it invests in -How it measures achievement of those social goals 2) To use the label a fund must invest at least 70% of its capital in social businesses. 3) management must -Ensure good conduct -Maintain effective systems and controls -Avoid conflicts of interest
59
what are the benefits and uses of MMFs?
MMFs offer: High liquidity Diversification Stability of principal with a market-based yield Corporations primarily use MMFs to invest excess cash over short periods, making MMFs key players in short-term cash markets.

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