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KIID survey - Is Luxembourg ready to meet the challenge? | Whitepaper


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UCITS IV and KIID

KIID surveyWhen the first drafts of UCITS IV were circulated, the greater part of focus fell upon the provisions regarding the Management Company Passport (the possibility for a Management Company established in one Member State of the European Union, to manage and administer a UCITS domiciled in another Member State), the possibilities opened up by allowing Master Feeder structures within UCITS, the facilitation of Cross Border Mergers, and other elements that touched on the organisation either of the product itself or the companies that facilitated that product. The section on the Key Investor Information Document (KIID), the obligation to produce a concise, largely codified document, in plain language for the benefit of investors, received an overall “nod” of approval but attracted little more than passing interest.

There was general satisfaction that the short-comings of the Short Form Prospectus had been recognised and addressed, but it is fair to say that the KIID aroused little more public comment than that. It was generally assumed to be an “Operational” Document, and as such something that would happen within the general course of business.

Now, on the day of the official entry into effect of UCITS IV, the situation is markedly different. Much analysis around Cross Border Mergers, and Master-Feeder structures has seen that initial enthusiasm founder on the too well known complexities thrown up by the absence of fiscal harmonisation, and above all the uncertainties as to not only how such structures might operate under national tax regimes. Fiscal considerations are also a major element in Promoters’ reflections as to availing themselves of the Management Company passport, and there is little perceived advantage in being first or even quick to market in deciding on a radical restructuring of Management Company operations.

But the KIID is real, tangible, and a part of UCITS daily life from now on.

It has even been suggested that the KIID may be the only truly lasting legacy of UCITS IV.

Scope

The scope of the KIID is very ambitious. It requires that all UCITS produce a standard two page document that sets out transparently and in plain language the investment objectives, risk factors and other relevant information allowing an investor to make a balanced investment decision. When one considers the diversity and variety of funds that now fall under the UCITS label, such an undertaking is no simple matter. Now as the day finally dawns, just quite what a challenge the detail of such an undertaking is, is more than apparent. This Survey has been conducted to assess the state of readiness of the market for the introduction of the KIID and the considerations that are now arising.

Methodology

This survey was conducted between the first and second quarter of 2011, with the results being interpreted towards the second half of the second quarter.

It is a qualitative survey, based upon a targeted sampling of market participants active in cross border registration. It has set out to capture the full spectrum from relatively small fund ranges that rely on quality and targeted distribution in a selected number of high impact markets to some of the larger Fund complexes that target the mass market in a largest number of markets possible.

The sample surveyed was selected on a non-scientific basis, based on potential respondents known to have a cross border activity in the management and marketing of UCITS. We believe the survey to give a good snap-shot as to the state of the industry when reviewed. This situation will evolve over time. In some cases the results of the survey have been supplemented by discussions held subsequently either directly with respondents or with other market participants.

More insights into the question may be found in the excellent KIID Q&A Document issued by the Association of the Luxembourg Fund Industry (ALFI).

The working group set up by ALFI under the Chairmanship of Mr Noel Fessey has done a remarkable job of assisting the industry in meeting the KIID challenge, and may be considered a benchmark of industry best practice in the field.

The survey was broken down into a number of sections around different themes. These are:

  • KIID and its implementation
    This section looks at general issues around putting a KIID strategy together, the scope, the parties involved, roles and responsibilities.
  • Where does the KIID fit activity sit within an organisation?
    The focus in the market is getting ready for the task in hand. However, KIID is not finished with the first production run. In this section the focus shifts to the implications KIID in the life cycle of a Fund and its Promoter
  • The financial commitment
    There is a cost to everything. What is it likely to be for KIID? Could the sheer logistics themselves have an impact on “on-going charges”?

The results of the survey are available in the downloadable PDF above.

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