Deloitte Valuation Conference AIFMD valuation topics for asset servicers 24th February 2015 Agenda Introduction 3 Focus on Roles and responsibilities of the Fund Administrator and Depositary 6 Case studies 9 Panel 13 Q&A and wrap-up 15 © 2015 Deloitte Tax & Consulting 2 Valuation for alternative investment funds (AIF) Main scope for today Overview of key stakeholders and related responsibilities Responsibilities: • Day-to-day NAV calculation and trigger escalation process • Ensure valuation models and policies are appropriate • Act as external valuer if appointed by the AIFM* Responsibilities: • Perform oversight on NAV calculation and be involved in escalation of NAV issues • Ensure valuation of AIF assets is independent and appropriate for each AIF • Understand valuation models and risk management framework © 2015 Deloitte Tax & Consulting 3 * If CA is appointed as External Valuer, roles and responsibilities are more important Potential synergies Valuation: multiple actors with multiple responsibilities What are the main questions we will treat today? NAV calculation process review BoD Delegation Portfolio Managers AIFM Delegation BoD Central Administrator • Due diligence, how far must everyone go? • External Valuer, is it a permanent stakeholder? • How far do providers need to go in the review of valuation models? • Do services participate to the Valuation Committee? • NAV oversight by the Depositary Bank • Investor disclosure • Escalation process Conducting Officers Valuation Committee Delegation Responsible for NAV calculation and portfolio valuation of funds Appoint Independent Valuer Depositary Valuation oversight Funds Appoint Auditor Audit of financial statements © 2015 Deloitte Tax & Consulting 4 Agenda Introduction 3 Focus on roles and responsibilities of the Fund Administrator and Depositary 6 Case studies 9 Panel 13 Q&A and wrap-up 15 © 2015 Deloitte Tax & Consulting 5 Roles and responsibilities of all actors in the valuation value chain Define and implement valuation model and policy Perform valuation function Oversight of valuation delegates and models ILLUSTRATIVE Escalation and intervention on valuation issues Main scope for today NAV Calculation • Ultimately responsible • Make decisions on for valuation valuation issues • Understand and approve following escalation model and policy for process each share class • Perform due diligence on models and delegates • Ensure escalation process is in place • Make decisions based on escalation • Liaise with Auditors and valuation delegates • Oversight on Fund Administration delegate Risk Manager • Review valuation model and policy appropriateness vs AIF risk profile • May not be involved in Portfolio Management • Ensure DB can perform oversight vs risk profile of the fund (information flow) • Be involved in the escalation process and intervention • Ensure NAV process is appropriate Internal Valuer • Set-up valuation policy and models per asset class (inc. regular update) • Perform valuation* • On-going review of models & policy • Oversight of valuation expert appointed (where applicable) • Trigger and initiate escalation process • Provide Data/price for NAV Calculation External Valuer • Set-up valuation policy and models per asset class (inc. regular update) • Perform valuation* • On- going review of models & policy • Oversight of valuation expert appointed (where applicable) • Trigger and initiate escalation process • Provide Data/price for NAV Calculation • Ensure policy and procedure is independent and appropriate • N/A • Ensure valuation is independent and appropriate • Ensure escalation process is appropriate • Be involved in the escalation process • Perform oversight on NAV Calculation • Be involved in NAV escalation process • Only if appointed as external valuer • Only if appointed as external valuer • Review valuation models and policies • Only if appointed as external valuer • Day-to-day NAV calculation • Trigger escalation process in case of NAV issues Board Directors, conducting officers and/or Valuation committee Depository Central Administration** © 2015 Deloitte Tax & Consulting * If an external valuation expert is appointed, review of the valuation ** If CA is appointed as External Valuer, roles and responsibilities are more important 6 Market practices addressing the regulatory obligations Oversight Valuation policies Perform Depositary due diligence Perform AIFM due diligence Valuation Delegates due diligence Review of valuation policies Tripartite operating memorandums Risk based approach oversight on NAV Review models and policies Be involved in escalation process NAV calculation Trigger escalation process Review models and policies Second level review on valuations The level of requirements can vary depending on the following aspects: • Operational set-up (integrated vs non-integrated) • Risk profile and valuation lifecycle of the fund • Asset classes (PE, RE, HF, Marked to Model) • Risk appetite of the actors Source: Deloitte Analysis © 2015 Deloitte Tax & Consulting 7 Agenda Introduction 3 Focus on roles and responsibilities of the Fund Administrator and Depositary 6 Case studies 9 Panel 13 Q&A and wrap-up 15 © 2015 Deloitte Tax & Consulting 8 Case studies (1/3) Fund of Hedge Funds* Valuation risk report Depositary BoD External provider Valuation oversight • Compare estimated NAV’s to final NAV of HF’s • Collect target fund financial statements (FS) • Review and analyse target fund FS AIFM Central Administrator BoD Conducting Officers NAV Calculation Valuation Committee Portfolio Managers Fund of Hedge Funds © 2015 Deloitte Tax & Consulting Source: Deloitte analysis Target Funds’ NAV Hedge Fund 1 Portfolio 1 Hedge Fund 1 Portfolio 2 Hedge Fund 1 Portfolio 3 Auditor NAV process review 9 *Fund valuation delegated to central administrator Case studies (2/3) • • • • Real Estate Fund Understand the set-up Risks identified and mitigated? Procedures applied / up-to-date? Structure monitoring (ownership, cash, etc.) Depositary Properties values AIFM BoD Investments values • NAV calculation (INREV) • Fund reporting / discl. • Reliance on third parties Central Administrator Conducting Officers Real estate Appraiser • Accounting / Consolidation • Book values (GAAP) • Accounts completeness / validity Valuation Function Accounting Agent Portfolio Managers PropCo 1 RE Funds (closed-ended) Fund holding SPV PropCo 2 PropCo 3 © 2015 Deloitte Tax & Consulting Source: Deloitte analysis 10 Case studies (3/3) Mark to model* Valuation control Delegation Depositary External provider Valuation oversight AIFM Central Administrator BoD Valuation Committee Portfolio Managers OTC Counterparty Derivatives valuation Funds Pricing comparison Escalation process Portfolio primarily composed of OTC derivatives © 2015 Deloitte Tax & Consulting Source: Deloitte analysis Analysis of differences with vendors and counterparties *Fund valuation delegated to central administrator Fund’s NAV Calculation AND/OR External Provider AND/OR Internally developed valuation model AND/OR External valuation model Market Data Provider NAV Calculation Conducting Officers Valuation model due-diligence Model vendor Counterparty prices within defined tolerance 11 Agenda Introduction 3 Focus on roles and responsibilities of the Fund Administrator and Depositary 6 Case studies 9 Panel 13 Q&A and wrap-up 15 © 2015 Deloitte Tax & Consulting 12 Our panellists Arnaud Bon Private Equity & Real Estate Leader SGG Group Arnaud joined SGG in 2009 as Operational Leader of the Fund Servicing department. Today, he is the firm’s Private Equity & Real Estate Industry Leader. As a Paris bar registered lawyer, he previously worked for Allen & Overy as a lawyer for Alternative Investment clients. Arnaud has advised on innovative alternative fund structuring and organizational models for leading fund managers. He has a Master’s degree II in Business and Financial Law and Magistère of Business Law from Sorbonne University (Paris). Born in France, Arnaud is a native French speaker, as well as fluent in English; he is also proficient in Greek. Pierre-Antoine Boulat Managing Director Function: Chief Executive Officer UBS Fund Services (Luxembourg) S.A. and Head Asset Servicing Delivery at UBS in Luxembourg Pierre-Antoine Boulat joined UBS Global Asset Management as Head of the Operations and IT Global Program Office in October 2006. He was appointed Head of Fund Services in Luxembourg in September 2011, responsible for the successful development of Global AM’s internal and third-party full value chain (from Management Company Services to Fund Administration and Transfer Agency) offering to institutional and quasiinstitutional (Wealth, Family Offices, Financial Intermediaries, Asset Managers, Banks) client franchise in the market as well as the availability of a commercial, profitable and high quality capability offering. From May 2012, in the context of the Integrated Bank in Luxembourg, Pierre-Antoine took up additional role in Asset Servicing Europe, and is today Head of Asset Servicing Delivery in charge of client relationship management and client service. Yvan de Laurentis Head of Depositary and Fiduciary Services Born in Marseille, France in 1974, Yvan graduated in Economics from the Ecole Supérieure de Commerce de Marseille-Provence in 1997. Since October 2004 Yvan has been heading and actively supporting the developement of BNP Paribas Securities Services Luxembourg’s Depositary and Fiduciary Services departement. In that role he is in charge notably of the fund depositary supervision, the fund hosting solution, the monitoring of funds investment rules and the legal fund engineering department. He is also an active of Member of ALFI and various committees and working groups including the Luxembourg DepoBank Forum and HR & Training Committee. Nico Thill Directeur and Head of Investment Fund Services Banque de Luxembourg Nico Thill, born in 1968, has over 20 years experience in the Luxembourg’s investment funds industry. He is currently member of the management of Banque de Luxembourg where he heads the Investment Fund Services’ business. Nico Thill holds a degree in Business Administration from the University of Liège and a degree in Commercial Engineering from the Hautes Etudes Commerciales in Liège, Belgium. © 2015 Deloitte Tax & Consulting 13 Agenda Introduction 3 Focus on roles and responsibilities of the Fund Administrator and Depositary 6 Case studies 9 Panel 13 Q&A and wrap-up 15 © 2015 Deloitte Tax & Consulting 14 Q&A © 2015 Deloitte Tax & Consulting 15 Thank you If you have any questions or comments, please contact [email protected] Key contacts Strategy & Corporate Finance Simon Ramos Partner – Investment Management + 352 451 452 702 [email protected] © 2015 Deloitte Tax & Consulting Strategy & Corporate Finance Pierre Masset Partner – Corporate Finance Leader + 352 451 452 756 [email protected] 16
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