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  • Bridging the gap: Aligning the Responsible Investment interests: PwC
    investment practices is an important influence on business behaviour in society Responsible investment RI is no different to any other investment decision it is guided by the principles that managing exposure to environmental social and governance ESG risk issues and identifying opportunities to implement improvements in these areas will protect and increase value It leads to a natural selection choosing businesses deemed to be more sustainable and less likely to suffer operational or reputational concerns or fall foul of regulation This report describes the results of our engagement with Limited Partners LPs to explore their perspective It s quite clear that responsible investment currently plays a significant role in their investment decisions with 71 of the LPs interviewed saying they would decline to participate in a General Partner s GP s fundraising or would turn down a co investment on ESG grounds 18 of LPs interviewed having withdrawn from an investment or withheld capital on ESG grounds RI will continue to do so in the foreseeable future with 97 expecting it to increase in importance over the next two years For GPs then it is critical to get this right to satisfy the growing expectations of the LPs It is a relatively new era though that s still finding its way It s clear that discomfort remains between LPs and GPs on how to achieve their RI objectives and that their expectations and approaches are yet to align It s a gap that feels destined to be bridged with 88 of LPs interviewed believing there is added value in RI there is a sense of continued optimism around it and willingness to pursue it Many of the comments and findings in this research and in previous PwC research indicate a disconnect in views particularly in ESG data needs to support decisions It would be easy to say that more discussion is needed between LPs and GPs to define a single approach to avoid numerous onerous data collection exercises and to gain a better understanding of the objectives of both sides But LPs and GPs have already embarked on this journey and developed the ESG Disclosure Framework launched in 2013 for reporting ESG information Work on an LP due diligence questionnaire is also underway through the Principles of Responsible Investment PRI When we talked to LPs they were generally clear on what they wanted from GPs but there was little sense that the ESG Disclosure Framework is the final piece of the information jigsaw in fact 47 said they never use it Developing a process that works for everyone is still very much a work in progress To many such initiatives may feel idealistic or like an onerous layer of administration but to an industry where there is a growing belief that RI is a driver of value they are not to be taken lightly It was clear from our dialogue with LPs that there is greater emphasis on quantifying the value that RI creates 74 of respondents indicated that they

    Original URL path: http://www.pwc.com/gx/en/industries/financial-services/asset-management/publications/asset-management-insights/bridging-the-gap.html (2016-02-10)
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  • Capital flows: PwC
    the need to be the best of the best to win either This year it is a given that capital of all kinds will be flowing much more freely in most markets Of those canvassed by Emerging Trends Europe 56 percent expect there to be moderately more equity in the market in 2015 with 15 percent expecting it to be significantly greater Sovereign wealth superannuation funds and institutional investors of all stripes are shifting from fixed income to real estate European respondents anticipate that much of the capital will come from the Americas as well as Asia Pacific But as one interviewee observes The availability of capital whether it is equity or debt is not an issue The problem is more that there is too much equity and debt and too few investment opportunities The corollary of so much capital focusing on limited real estate stock is higher prices Core property is overpriced in almost all markets say 61 percent of those surveyed If you have the capital you should have spent it yesterday says one UK opportunity fund manager Unsurprisingly around the same proportion who think core property is overpriced around three fifths of Emerging Trends Europe respondents say that finding the required rate of return will involve taking on more risk But if spending the money effectively is a challenge there is no doubt that it wants to go into real estate The overwhelming majority 70 percent of those surveyed by Emerging Trends Europe expect more equity and debt to flow into their markets in 2015 What is more 83 percent believe capital flows from Asia Pacific into European real estate will increase in 2015 Much the same sentiment is evident in the US where international investment has been ramped up over the past year From coast to coast Chinese investors for instance have been grabbing headlines with deals like the 1bn acquisition by Greenland Holdings of the Metropolis project in Los Angeles from CalSTRS and its 70 percent stake in Brooklyn s 14 building Atlantic Yards development joining Forest City Ratner China Vanke meanwhile is working with Tishman Speyer in a 655 unit apartment project in the South of Market neighbourhood in San Francisco Yet China is just one of many sources of inbound investment albeit perhaps the most visible because of the predilection of the Chinese for eye popping deals Emerging Trends interviewees know first hand the breadth of the offshore equity capital rushing into the US A New York based value add owner operator rattles off those buying pieces of his deals in the past year Israelis Koreans Egyptians Russians Mexicans and others have all come to us for a piece of Manhattan Gateway cities are still the principal targets for offshore investors with the list now including Houston and Seattle in addition to the big California markets Miami and the Boston Washington corridor And according to one investor The heartland is now actively considered by Russian South American Middle Eastern and Asian investors They

    Original URL path: http://www.pwc.com/gx/en/industries/financial-services/asset-management/publications/asset-management-insights/capital-flows.html (2016-02-10)
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  • Private equity trend report 2015: Key findings: PwC
    A large majority 91 of respondents expect the private equity PE deal market to improve in 2015 Only 60 of last year s respondents predicted an improvement in 2014 The majority of respondents 67 say the number of existing PE firms will increase over the next 12 months While this figure likely points to positive growth it is a decline from the 85 of the same respondent pool who saw an increase in the number of PE firms in 2014 Germany most attractive market Western Europe is the most appealing investment geography with most respondents pointing to it as the top market for international PE investments These figures are likely somewhat biased in favour of Europe because of the survey s European respondent pool The US both historically and currently is the biggest market for PE investment globally Still Western European targets were popular in 2014 accounting for 28 of PE volume globally and 24 of value Based on respondents enthusiasm for the region its importance as a PE destination looks set to continue into 2015 The largest share of respondents considers Germany to be among the most popular target markets for buyouts While the UK and France currently stand as Europe s most popular destinations this could point to increasing confidence in investment in the country Industrial production and consumer sector on the rise The industrial production sector 38 and the consumer sector 32 top the list of attractive target sectors in 2015 This chimes with announced figures for 2014 with industrials and consumer seeing the largest share of deals by volume Improvement in credit conditions debt to equity ratios and covenant breaches About half of respondents expect an improvement in credit conditions in 2015 and half expect no change Very few expect credit conditions to worsen over the coming year This is a marked improvement from the previous edition of this report in which only around a quarter of respondents expected that conditions would improve in 2014 Only 14 of international respondents reported using debt to equity ratios of 50 or higher in 2014 This is a marked improvement from the previous study in which 20 of international funds used debt to equity ratios of 50 or higher 88 reported that fewer than 10 of their portfolio companies experienced covenant breaches last year This marks a positive change from the previous edition when respondents were more likely to cite the 10 to 20 range or the 20 range Further focus on operational improvements Sales force effectiveness operational improvements and financial modelling will factor most heavily into investment rationales this year This is something of a departure from the previous edition of this report in which operational improvements buy and build and market consolidation were tipped to be the main drivers of 2014 The vast majority of 2014 s survey pool cite expansion of capital opportunities distressed opportunities and add on acquisitions as the top three deal drivers of 2015 This is broadly in line with market trends in

    Original URL path: http://www.pwc.com/gx/en/industries/financial-services/asset-management/publications/asset-management-insights/private-equity-trend-report-2015.html (2016-02-10)
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  • Proposals to extend the Hong Kong offshore fund exemption regime: PwC
    funds can enjoy an exemption from Hong Kong profits tax on specified transactions carried out through specified persons Specified transactions are defined broadly and include transactions in securities futures foreign exchange contracts foreign currencies and exchange traded commodities and the making of certain deposits However transactions in shares in private companies are excluded from specified transactions An anti avoidance provision was introduced at the same time to prevent abuse or round tripping by local funds disguising themselves as offshore funds to take advantage of the exemption The provision attributes the share of income in such an exempted offshore fund except a bona fide widely held fund to certain Hong Kong resident investors who hold a beneficial interest in the offshore fund and deems such Hong Kong resident investors to have devised his her share of the Hong Kong sourced profits of the offshore fund The Departmental Interpretation and Practice Note DIPN 43 was introduced to provide practical guidance and examples on the implementation of the regime Over the years concerns were raised by the fund industry on the limitations of the regime introduced in 2006 The proposals There are three key proposals in the briefing paper Extending the current tax exemption to offshore PE funds The major thrust in the briefing paper is to extend the offshore fund exemption to transactions in an eligible portfolio company EPC even though it is a private company incorporated outside Hong Kong An EPC is defined to mean one which at all times within the three years before a securities transaction in this portfolio company it did not i carry on any business in Hong Kong ii hold any interests in one or more private companies carrying on business in Hong Kong with aggregate value of which capital and interests exceeding 10 of its assets and iii hold immovable property in Hong Kong directly or indirectly with aggregate value exceeding 10 of its assets The private company will not be considered as carrying on business in Hong Kong for the purpose of the exemption if the business activities are of purely preparatory or auxiliary nature Relaxing the criteria for specified transactions arranged by or carried out through persons who are licensed under the SFO Under the current regime only specified transactions carried out through a specified person being corporations and authorised financial institutions licensed or registered under the SFO are exempted The proposed change will relax this requirement by exempting specified transactions of an offshore fund which is a qualifying fund even if these transactions are not carried out through a specified person A qualifying fund is a fund which at all times after the final close of sale of interests i has five or more investors who are not associates of the originator of the fund ii the capital commitments of these investors exceed 90 of the total capital commitment and iii the net proceeds to be received from the fund by the originator does not exceed 30 of the net proceeds arising

    Original URL path: http://www.pwc.com/gx/en/industries/financial-services/asset-management/publications/asset-management-insights/proposal-hong-kong-offshore-fund-exemption.html (2016-02-10)
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  • Asset Management Insights: The future of funds distribution in Asia: PwC
    are in the minds of consumers While China has captured Asia s imagination with the growth of e fund platforms it is not the only market to do this South Korea has launched an online fund supermarket Funds Online Korea Network while Thailand s Wealth Magik fund platform has also made its debut This phenomenon will likely drive a paradigm shift among asset managers who will increasingly need to consider the customer experience as part of their value proposition Mutual recognition mutual opportunities The significant opportunity of a fund mutual recognition agreement between Hong Kong and China was a topic of immense interest and discussion among roundtable participants One senior executive believes there is significant upside but this will depend on market conditions and confidence in the wider economy The executive cited the limited success of China s QDII programme that provided Mainland investors with the means of investing offshore However it was perhaps the timing of the QDII launch right before the Global Financial Crisis that proved to be its undoing But just how successful could mutual recognition be for Hong Kong and China One needs to look no further than Taiwan which has had a long and successful track record of global fund sales according to one asset management CEO In 10 years time China could mirror Taiwan s success today but on a much larger scale Longer term as the market matures and demand grows for more sophisticated products investor education will be key to winning new business A joint effort by industry and government to educate the wider public is critical to moving retail investors away from a stock picking mentality towards an investment mind set says one participant All round table participants agreed that capitalising on mutual recognition would depend on having the right distribution model Participants were also enthusiastic about other cross border agreements currently in development the Asian Region Funds Passport ARFP and the ASEAN initiative Both these schemes will facilitate the sale of fund products to retail investors in multiple markets The other major benefit of these programmes will be the movement of capital from places where investors are seeking yield to destinations with the ability to deliver growth The ASEAN initiative was launched in July 2014 and as of the first quarter of 2015 five funds are already in the process of being authorised for cross border sales While this covers only three countries Singapore Malaysia and Thailand the ASEAN Integration 2015 plan to create a single economic and trade region within South East Asia is expected to boost demand and investors appetite to venture beyond their borders in search of yield The ARFP programme under the Asia Pacific Economic Cooperation APEC agreement has much wider potential when it goes live in 2016 The APEC ARFP is now in its second consultation phase Once the Memorandum of Understandings are signed by September 2015 national country regimes starting with the six countries that have signed up being Australia Singapore New Zealand Korea

    Original URL path: http://www.pwc.com/gx/en/industries/financial-services/asset-management/publications/asset-management-insights/the-future-of-funds-distribution-in-asia.html (2016-02-10)
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  • Asset Management Insights: Trends in real estate: PwC
    all our vaunted technological innovations the foundation of our commerce is eroding around us It s not just bridges and roads since 2009 spending on educational buildings and health care facilities by both public and private sectors is down by one third in real dollar terms Housing steps off the roller coaster Housing seems to be putting the excesses of the bubble and the ensuing collapse behind it The trend in residential real estate looks to be returning to the classic principles of supply and demand Confidence in housing should continue to rise Keeping an eye on the bubble emerging concerns The generally positive outlook does have a dark side Excessive optimism can promote overbuilding and excess leverage However that hasn t happened yet The industry looks like it has learned some lessons in self regulation and self correction Europe Europe s real estate industry expects to be busier and more profitable in 2015 This optimism is clear despite weak fundamentals and economic conditions as well as an undercurrent of concern about the geopolitical situation in parts of the world The confidence comes from the availability of capital Real estate is awash with equity Most of Emerging Trends Europe s survey respondents and interviewees anticipate an increase in both prime and secondary values as a result of greater liquidity and the need to deploy capital in this asset class In many of Europe s main markets growth in values has far exceeded any rise in occupier activity Across the Eurozone in particular rental growth remains elusive This disconnect between capital flows and fragile occupier demand is expected to be once again a feature of the markets in 2015 Nearly two thirds of those surveyed by Emerging Trends Europe believe that core property is overpriced in almost all markets In this respect the major influences are the equity rich sovereign wealth funds and pension funds and insurers from Asia which have helped drive up the price of core assets in gateway cities such as London Paris Milan and Berlin These players are expected to play an even bigger role in European markets in 2015 Private equity firms from North America will also remain a force What s true of equity is almost equally true of debt Non bank lenders such as debt funds and insurance companies are expected to raise their game significantly providing much needed diversification from the bank dominated landscape of the last boom Though credit has eased considerably for real estate in Europe it is not the same everywhere The most liquid markets of Northern Europe expect the flow to swell further In Southern Europe where domestic lenders are still constrained respondents think 2015 will bring an improvement while in the Nordics and Central and Eastern Europe they are less exuberant in their expectations Finding finance for development remains a challenge And yet there is just a seed of doubt among some that the debt market has rebounded too far too fast Spending the money effectively is also

    Original URL path: http://www.pwc.com/gx/en/industries/financial-services/asset-management/publications/asset-management-insights/trends-in-real-estate.html (2016-02-10)
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  • Asset Managements Insights: Indian mutual fund industry: PwC
    need to be examined It is interesting to also observe the large global trends because surely and inexorably they will affect the domestic industry in the medium term The era of insulation is almost over Despite the impressive growth the industry remains hemmed in by constraints within the operating framework Whether we examine the industry from the perspective of GDP or household savings the share of the industry has remained small and more importantly has not grown as rapidly as was desirable All other alternatives such as real estate gold deposits have consistently outstripped the industry flows The industry has not achieved its rightful position in the basket of options confronting an investor therein lies a huge growth opportunity As regards investors and investor mix apart from the adverse statistics regarding the declining trend in folios etc the larger picture is that of an opportunity to make a positive change The investor mix has also not changed significantly There is an opportunity to tap into the broad basing of savings and surpluses across the demographic and regions In many ways the industry has shaped itself into a mutual fund industry rather than an asset management industry as defined by global peers There exists an opportunity to offer products that address multiple investor needs Taking a cue from global trends not only does there lie an opportunity to tap into management of pension and insurance funds but also to increase the penetration of products such as ETFs Additionally while asset managers in India are the largest Indian asset managers they are not necessarily the largest managers of Indian assets tax certainty and a push by the industry can open the doors for turning India an international asset management hub There is an opportunity for the mutual fund industry to morph itself

    Original URL path: http://www.pwc.com/gx/en/industries/financial-services/asset-management/publications/asset-management-insights/indian-mutual-fund-industry.html (2016-02-10)
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  • Asset Management Insights: Hedge fund administration: PwC
    are set to drive new growth There s little doubt that hedge fund administration HFA or back office outsourcing is a maturing industry as over 80 of hedge fund AUM is administered by a third party Unsurprisingly over the past seven years 43 of the asset growth among top 10 administrators came from acquisitions However despite 27 acquisitions of hedge fund administrators since 2006 11 involving firms that administer at least 20 billion or more in assets M A activity in 2013 slowed due to an increase in valuations and a decrease in the number of viable acquisition candidates Because HFA demand is triggered primarily by external forces such as post crisis investor pressure placed on hedge funds to outsource their books and records organic growth in hedge fund administration will be challenging as firms are forced to compete for a relatively static group of clients What s next As organic and inorganic HFA growth opportunities decrease will there be new demand for administration services And if so where will this demand come from The answer lies in the competitive forces now shaping the asset management industry We ve found that four trends in particular appear poised to drive new growth in hedge fund administration see below 1 Increased need for regulatory reporting Demand for regulatory reporting services such as AIFMD Solvency II and Form PF remains strong 2 Manager and product convergence Strong growth in assets under management AUM is expected for liquid alternative products Citi Prime Finance estimates that these products will exceed 900 billion in AUM by 2017 1 At this rate of growth the administration industry could capture incremental revenue in the range of 600 million to 825 million on an undiscounted basis for the period of 2013 2017 3 Cost efficient fee operations Asset managers are looking to become more cost efficient in response to pressure from institutional investors Administrators may want to develop new services that help asset managers achieve higher levels of operational and cost efficiency 4 Expanded outsourcing Opportunities exist for administrators to offer private equity administration services The US addressable market for private equity administration remains large at 73 of invested capital or 1 7 trillion If private equity outsourcing were to reach 50 by 2018 it s currently at 30 today then the incremental revenue opportunity for the fund administration industry is 660 to 880 million on an undiscounted basis for the period of 2014 2018 Middle office outsourcing is another organic growth opportunity for HFA firms We estimate over 50 of hedge fund managers use an inhouse middle office function 1 Citi Investor Services white paper The rise of liquid alternatives and the changing dynamics of alternative manufacturing and distribution May 2013 As these trends take hold administrators will invariably follow different paths toward growth many of which will be influenced by such characteristics as size ownership structure and service mix Small undercapitalised administrators may focus on making improvements to both cost efficiency and their core competencies as a

    Original URL path: http://www.pwc.com/gx/en/industries/financial-services/asset-management/publications/asset-management-insights/hedge-fund-administration.html (2016-02-10)
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