Client Newsletter Spring 2010 - Financial Services

Profession:Dillon Eustace

In this issue:-

European Commission's Draft Directive on Alternative Investment Fund Managers Class level assets within Irish funds New Issues Interest Rate Hedging Undertakings for Collective Investment in Transferable Securities (UCITS) – collateral passed by UCITS to OTC derivative counterparties Disclosure in Complex UCITS Funds UPDATE ON THE EUROPEAN COMMISSION'S DRAFT DIRECTIVE ON ALTERNATIVE INVESTMENT FUND MANAGERS

The EU Parliamentary committee for economic and monetary affairs has delayed its vote on the Alternative Investment Fund Managers Directive (the "AIFM Directive") for a third time. The vote, due to take place on May 10 was delayed so amendments proposed by the EU Parliament's legal affairs committee can be taken into account.

The Spanish EU Presidency published three new EU Council compromise texts for the proposed AIFM Directive in March, 2010. The Spanish presidency reinstated Article 35 which had been removed by the Swedish Presidency. It stipulates that non-EU managers and funds may only be able to access the EU market if there is a cooperation agreement in place between the jurisdiction where they are based and the EU jurisdiction they wish to market in. Potentially this could mean that the EU market could be effectively closed to non- EU funds and managers.

Two further amendments to the AIFM Directive were proposed by the EU Parliament's legal affairs committee on 28 April, 2010. These amendments will allow national private placement regimes to continue operating under reasonable conditions. The EU Council's group of finance ministers is due to vote on the AIFM Directive on May 18, having also delayed its vote from March due to continued disagreement over key points.

For detailed information on AIFM, please refer to your usual contact in Dillon Eustace.


The Irish Financial Regulator has issued a Policy Update (February 9, 2010) in relation to class level assets within Irish funds clarifying the circumstances in which:

financial derivative instruments may be used at share class level to provide for standard class level distinctions (currency and interest rate hedging, different distribution policies and fee structures) but, more importantly, to provide different levels of participation in the performance of the underlying portfolio; investment in New Issues can be carried out at share class level; and interest rate hedging can be carried out at share class level. Background

For many years Irish funds have been permitted to issue multiple share classes in respect of a single portfolio of assets, with the differentiating features between the different classes usually being currency hedging at class level and different class level distribution policies, management fees and front end/exit fees.

The core principles underpinning the Financial Regulator's approach to multiple classes in respect of a single portfolio of assets (a "Fund") are that:

each Fund must consist of a single common pool of assets; assets may not be allocated to individual share classes; and the capital gains/losses and income arising from that pool of assets must be distributed and/or must accrue equally to each...

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