Asset Management updates

On 21 December 2022, the Central Bank of Ireland published its 37^th edition of the UCITS Questions and Answers (PDF, 879KB), featuring three new Q&As (ID 1107, 1108 and 1109) concerning Packaged Retail and Insurance-based Investment Products (‘PRIIPs’) filing requirements, which come into effect from January 2023.

• ID 1107 advises that where a UCITS produces a PRIIPs Key Information Document (‘KID’) and not a UCITS Key Investor Information Document (‘KIID’), it shall submit the PRIIPs KID to the Central Bank prior to the authorisation of each UCITS or approval of a new sub-fund. The PRIIPs KID must also be accompanied by a written confirmation from the responsible person or legal adviser to the UCITS setting out that: (i) the KID complies with the PRIIPs Regulation; and (ii) the information in the KID does not conflict with the content of the prospectus. In the case of a UCITS authorised after 1 January 2023, which only produces a PRIIPs KID, every new or amended PRIIPs KID thereafter should be submitted by the responsible person as per the same processes for UCITS KIIDs.
• ID 1108 advises that where the UCITS produces both a PRIIPs KID and UCITS KIID, prior to the authorisation of each UCITS or approval of a new sub-fund, the responsible person should submit the UCITS KIID (and relevant confirmations) to the Central Bank. The responsible person is not required to file the PRIIPs KID with the Central Bank upon authorisation or approval of the UCITS, and thereafter.
• ID 1109 clarifies that where an existing UCITS produces a PRIIPs KID, there is no requirement to submit the PRIIPs KID to the Central Bank on 1 January 2023. The first reporting/submission of these PRIIPs KIDs to the Central Bank is expected to take place in 2024. Periodic updates to such PRIIPs KIDs will only be required to be filed with the Central Bank after the first reporting exercise. Once finalised, the Central Bank will publish further details of reporting requirements for PRIIPs KIDs.

On the same date, the Central Bank published its 46^th edition of the Alternative Investment Fund Managers Directive (‘AIFMD’) Questions and Answers, revising ID 1126 which considers if AIFs within the scope of the PRIIPs Regulation are required to file KIDs with the Central Bank. The Q&A sets out the Central Bank’s requirement that Retail Investor AIFs which produce PRIIPs KIDs shall file these on an ex-post basis, to include periodic updates to existing KIDs. The first annual reporting of such KIDs will take place in January 2024.

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On 16 December 2022, the European Securities and Markets Authority (‘ESMA’) updated its Questions and Answers document on the application of the AIFMD (PDF, 879KB), including one new Q&A (Section XI, Q3) on whether the managers of Special Purpose Acquisition Companies (‘SPACs’) are subject to the AIFMD.

The Q&A clarifies that while SPACs are not yet legally defined in EU law, ESMA has described their features, further noting that the structure of SPAC transactions is complex with significant variations between the general structuring of relevant vehicles and concrete modalities of their transactions. As such, ESMA advises that it is important to assess, on a case-by-case basis, whether SPACs meet the definition of an AIF or a “holding company” under the AIFMD. Such an assessment should take into account the specific features and characteristics of the individual structure of the SPAC and should be based on substance, not form, paying close attention to the guidance provided in the ESMA Guidelines on key concepts of the AIFMD (ESMA/2013/611, PDF, 100KB).

The Q&A further notes that, during the life-cycle of a SPAC, there might be circumstances which may be relevant when assessing if a SPAC qualifies as an AIF, the occurrence of some or all may indicate that a SPAC is not an AIF, as it might not meet all of the elements described in the ESMA guidelines. 

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On 20 December 2022, the EU member states agreed on a mandate to start negotiations with the European Parliament on a review of the Markets in Financial Instruments Regulation, (PDF, 665KB) and the Markets in Financial Instruments Directive ('MiFID II'). Priorities for policymakers are to improve transparency and availability of market data, to improve the level-playing field between execution venues and to ensure that EU market infrastructures can remain competitive at international level.

Among other things, the draft regulation aims to establish a consolidated tape to provide access to market data from trading venues as well as systematic internalisers and approved publication arrangements across the EU in a consolidated manner. This will improve the overall price transparency across trading venues and will provide investors with easier access to trading data. The text also ensures that consolidated tape providers provide reliable consolidated data close to real-time. The draft regulation also clarifies the limitation on dark trading, proposing a new single volume cap relying solely on an EU-wide threshold set at 10%. The draft regulation also introduces a restriction of payments for routing client orders in the EU, leaving discretion to Member States to allow this practice only in their territory.

The European Fund and Asset Management Association (‘EFAMA’) welcomed the Council position, noting that the agreement moved towards a firm roadmap to deliver a real-time consolidated tape for equities, and builds the foundations for real-time pre-trade equity data. On the 10% single volume cap, EFAMA noted that this simplified the equity market transparency regime, while preserving the diversity of trading options for all investors. 

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On 21 December 2022, ESMA published draft technical standards on cross-border activities under the UCITS Directive and the AIFMD, specifying the information to be provided, and the templates to be used, to inform competent authorities of the cross-border marketing and management of investment funds and the cross-border provision of services by fund managers.

The publication of the draft technical standards follows a public consultation launched in May 2022. ESMA has submitted the RTS and ITS to the European Commission for adoption within three months, respectively, in the form of a Delegated Regulation and a Implementing Regulation. If adopted, the Delegated Regulation and the Implementing Regulation will then be subject to the non-objection of the European Parliament and Council. 

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On 14 December 2022, EFAMA published its annual asset management report (PDF, 3.7MB), which provides an in-depth analysis of recent trends in the European asset management industry, and focuses on where investment funds and discretionary mandates are managed in Europe. The key findings identified by the report include:

• Total assets under management (‘AuM’) in Europe grew to €32.2tn at the end of 2021, which is mainly concentrated in the UK, France, Germany, Switzerland, the Netherlands and Italy.
• The share of investment funds in total AuM has risen steadily to a record 56.6% at end-2021.
• Net assets of sustainable UCITS equity funds amounted to an estimated €1.1tn at the end of September 2022, covering 2,648 funds, representing a share of 27% of total equity UCITS. Net assets of sustainable bonds amounted to €343bn.
• The share of retail clients increased to 28% of total AuM in 2021, as European households regained confidence in capital market instruments.
• Bonds accounted for 36% of the assets managed by asset managers at the end of 2021, with the share of listed equity having increased from 28% in 2018 to 33% in 2021.

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On 14 December 2022, EFAMA published its latest International Quarterly Statistical Release (PDF, 1.2MB) setting out the developments in the worldwide investment fund industry during Q3 2022. Net assets of worldwide investment funds remained stable at €62tn. However, in US dollar terms, net assets measured dropped by 6.1% due to the strong appreciation of the US dollar against the Euro. Net investment fund assets declined, both in Europe and the United States, as financial markets performed poorly over Q3. Worldwide long-term funds recorded net outflows of €53bn, compared to net outflows of €190bn in Q2 2022. However, worldwide money market funds (‘MMFs’) recorded net inflows of €18 billion, compared to €32bn in Q2 2022, attributable to net inflows in the US and China.

Further, on 22 December 2022, EFAMA published its latest monthly Investment Fund Industry Fact Sheet (PDF, 389KB), providing data for UCITS and AIFs for October 2022. Net sales of UCITS and AIFs gave rise to net inflows of €3bn (compared to net outflows of €103bn in September 2022), with UCITS having net inflows of €71bn (compared to net outflows of €109bn in September), and net outflows for AIFs of €69bn (compared to net inflows of €5bn in September). Total net assets of UCITS and AIFs increased by 1.3% during the period to €19.23tn.

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