Europe’s sustainable investment rules and demand from international fund managers to enter the EU are two reasons why law firm and Legaltech and Regtech provider Zeidler Group launched a dedicated funds structuring team. Elisa Forletta-Fehrenberg, Head of ESG and Sebastien Moies, Head of Fund Structuring, explain.
Growing demand for fund structuring advice at law firm Zeidler Group led the multi-jurisdictional business to set up a dedicated fund structuring team in 2020. More clients have been seeking to understand the evolving and often complex EU investment rules and regulations, which include changes of product and distribution rules under MiFID, how alternative investment funds (AIFs) are marketed under the AIFMD, and a centrepiece of sustainable investing regulation known as the Sustainable Finance Disclosure Regulation(SFDR).
Demand for advice, says Sebastien Moies, Head of Fund Structuring, spanned many different industry actors – the funds themselves, the investment managers running them, the UCITS management companies or AIFMs and the administrative agents providing services, and depositary banks.
“A number of clients were already asking us for legal counsel and advice on fund structuring, so we set up a dedicated team over a year ago. The team advises clients on the best way to set up, structure and make amendments to their investment vehicles mainly in Luxembourg and Ireland”.
Zeidler Group – which has 200 global clients with aggregate assets under management of more than US$1 trillion - works on any type of fund, including highly regulated such as UCITS and also AIFs, the latter which includes assets or strategies such as private equity and hedge funds.
Specific areas of advice span fund set up (including liaising with the local regulators) but also contractual negotiations and, of course, compliance with laws and regulations. Some non-EU managers can be unfamiliar with EU financial regulations and by understanding them, they can choose the most suitable product for themselves and clients, says Moies.
Zeidler’s fund structuring services include drafting the instruments of incorporation, the prospectus or the private-placement memorandum and UCITS Key Investor Information Documents (KIIDs). Service-provider agreements are also written and reviewed and negotiated with counterparties.
One way of how the firm seeks to differentiate itself from other law firms is by the way it bills for services. “Most of the time we don’t bill by the hour, but on a fixed-fee basis, which improves client communications,” says Moies. “They see us more as an extension of their own legal department, so they don’t hesitate just to forward us an email or to pick up the phone if they have a query.”
A green and confusing landscape
ESG has undoubtedly been the biggest driver for change in the fund management world in the past two years, with additional requirements from a compliance and legal perspective.
Moies says ESG is a high priority for clients, and they demand credible ESG structures that are addressing SFDR, the EU’s ‘green’ taxonomy, as well as shareholder rights and stewardship codes.
Forletta-Fehrenberg,Head of ESG at Zeidler, says: “The main challenge for firms from an ESG perspective is the uncertainty surrounding the legislative process. The main regulation – the SFDR, which came into effect in March 2021, has been ground-breaking for Europe, putting it at the forefront of ESG globally as the EU pioneers these measures in the whole financial world.”
“The trouble is that it is a very ambitious regulation, associated with another piece of demanding regulation − the EU taxonomy.”
The taxonomy is a kind of glossary for the financial industry used to define what is and what isn’t a sustainable investment under its framework.
“Both SFDR and taxonomy have Level 2 measures, which are regulatory technical standards. They have been issued and consulted upon but there is no final version and recently the European Commission asked to postpone these. As a result, our clients are not sure what exactly they have to comply with. This can be a confusing and challenging landscape for them for to navigate.”
What’s more, EU Member States are adding more requirements; either that, or they are giving a different interpretation . For example, France has developed its own doctrine on marketing funds as ESG products. For fund firms outside Europe this means understanding potentially 27 different approaches to how ESG translates into their fund structuring and distribution practice.
“These are some of the many challenges we’re helping our clients address and as we advise on all jurisdictions, we are very well placed to support them in navigating conflicting or potentially diverging approaches,” says Forletta-Fehrenberg.
She adds that Zeidler is launching a tool that helps clients comply with SFDR reporting. “This is a technological solution, complemented by our local expertise and advice on what needs to be contained in these reports – and it will be available at the beginning of next year.”
Moies says the work to prepare around SFDR and the implementation of Level 2 measures will continue to roll into and through the autumn and even next year.
But there are other topics beyond SFDR in the investment funds world. To name one, a new cross-border directive and regulation on the distribution of investment funds will have an impact on registration and marketing abroad.
Another topic is the Key Investor Document under the PRIIPS – or Packed Retail and Insurance-based Investment Products regulation - which will eventually replace the UCITS KIID.
As the need for legal and compliance advice and Zeidler’s client base grow, the group itself is expanding locally and globally. The firm, which was established in Frankfurt in 2008, now has 50 employees in total and has additional offices in Luxembourg, Dublin, London and a specific tech HQ in Mumbai. Most recently, the firm has opened its latest European office in Paris and its first Australian office in Melbourne. The firm plans to open its first North American office in Q2, 2022.
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