Funds Analysis 04.09.2021

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TITLE: French Banking Law // VOLCKER Rule Analysis

Guidelines for the reading of the selected funds.

Weekly analysis of the 04 September 2021: LEMANIK SICAV – EUROPEAN SPECIAL SITUATIONS RETAIL EUR A CAPITALISATION

The analysis will be made thanks to EURONEXT FUNDS360. This fund has been selected for its orientation in the European companies and its performance.

1)   Overall performance on the 01/09/2021:

Historical performance of the fund: +34,85% since the beginning of the year, +62,36% over the last year.

The purpose of this analysis is to determine if this fund shall be or not considered as a leveraged UCI (Undertakings for Collective Investments).

If a fund is considered as a leveraged UCI, an eligible guarantee must be established by the banking entity for any transaction.

2)   Fund overview:

Type of UCI: UCITS

LEMANIK SICAV (the « Company ») is listed on the official list of undertakings for collective investment pursuant to the law of 17th December 2010 relating to undertakings for collective investment (hereafter referred to as the « Law » or the « Law 17th December 2010 ») and submitted to the Law and to the law of 10th August 1915 on commercial companies, as amended (the “1915 Law”).

Legal form: Luxemburg OEIC

Type of investment policy:

This sub-fund mainly invests in Transferable Securities of European issuers (excluding Eastern Europe and Russia) which are listed on any European market.”

This fund is an Equity Fund, focused on European companies.

APPLICABLE LAW: Luxemburg

ISIN : LU0090850842

Profile of investors:

This fund is open to both retail and institutional investors.

Level of investment in other UCIs:

“the aggregate proportion of assets of UCITS or other UCIs, whose acquisition is contemplated which, in accordance with their management regulations or instruments of incorporation, may be invested in the units of other UCITS or UCIs does not exceed 10%;

This fund shall not invest more than 40% in any leveraged UCI (10%).

GLOBAL EXPOSURE:

The sub-fund’s global exposure shall consequently not exceed 200% of its total net assets. In addition, this global exposure may not be increased by more than 10% by means of temporary borrowings (as referred to in section B (3) of Appendix I below) so that the sub-fund’s overall risk exposure may not exceed 210% of any sub-fund’s total net assets under any circumstances.”

The total fund exposure is regulated by the UCITS Regulation. Therefore, the global exposure of the SICAV shall not exceed 300% of the net asset value.

Asset Manager : Lemanik Asset Management S.A.

3)  SUMMARY

To be considered as a leveraged UCI, a fund shall:

  • Have a global exposure of more than 3 times the NAV
  • Invest in more than 40% in others leveraged UCI

Regarding the investment policy and the characteristics described, this fund shall not be considered as a leveraged UCI.

Therefore, global exposure shall not be above 300% of the total assets.

Therefore, any financial institution that would make an operation with this fund shall not need to set an eligible guarantee.

4)  Volcker Rule Analysis

4.1) Introduction to the Volcker Rule

Source: https://www.nortonrosefulbright.com/en-a/knowledge/publications/ce3b3aa3/implications-of-the-volcker-rule-for-foreign-banking-entities

“Section 13 of the Bank Holding Company Act of 1956, as amended (the “Volcker Rule”), introduced in the Dodd-Frank Act, 3 generally “prohibits any banking entity from engaging in proprietary trading or from acquiring or retaining an ownership interest in, sponsoring or having certain relationships with a hedge fund or private equity fund, subject to certain exemptions”

The Volcker rule targets a covered fund, which includes an issuer that would be an investment company, but for the exclusions contained in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act of 1940, as amended (the “1940 Act”).

Source :

http://www.iflr.com/pdfs/A-users-guide-to-the-Volcker-Rule.pdf

Description of section 3©(1) and 3©(7) of the US investment company act of 1940 :

https://www.strictlybusinesslawblog.com/2017/09/21/3c1-funds-vs-3c7-funds/

After the description of the Volcker Rule, let’s determine if the fund LEMANIK SICAV – EUROPEAN SPECIAL SITUATIONS RETAIL EUR A CAPITALISATION shall be considered as a covered fund or not.

4.2) Exclusions of Volcker Rule

To determine if a fund is a covered fund, let’s look about the exclusions of the law:

  • Foreign public funds
  • Wholly-owned subsidiaries
  • Joint ventures
  • Acquisition vehicles
  • Securitization related vehicles
  • Funds regulated under the 1940 Act
  • Other excluded entities

In addition, permitted activities and market-making are allowed:

“The prohibition against proprietary trading does not apply to permitted underwriting activities and market making-related activities. (…) To engage in either permitted activity, a banking entity must comply with three overall conditions:

  • the banking entity must maintain an internal compliance program required by Subpart D (and discussed below) to ensure that the banking entity complies with the conditions permitting the activity;

 

  • the compensation arrangements of people involved in these activities must not be designed to reward or incentivize prohibited proprietary trading; and

 

  • the banking entity must be licensed or registered to engage in the permitted activity.

In addition, the following specific conditions apply.

  • Underwriting: “Underwriting activities are permitted only if the trading desk’s underwriting position is related to a “distribution” of securities for which the banking entity is acting as underwriter.”

 

  • Market-making: “Market making-related activities are permitted only if the relevant trading desk routinely stands ready to purchase and sell one or more types of financial instruments related to its financial exposure and is willing and available to quote, purchase or sell those types of financial instruments for its own account in commercially reasonable amounts and throughout market cycles on a basis appropriate for the liquidity, maturity and depth of the market for the relevant types of financial instruments”

 

  • Permitted risk-mitigating hedging activities: “The prohibition on proprietary trading does not apply to certain risk-mitigating hedging activities.”

 

The Volcker 2.0 “(…) add four new exclusions to the definition of “covered fund” — credit funds, venture capital funds, family wealth management vehicles and customer facilitation vehicles — thereby exempting them from the scope of the Volcker Rule.”

https://www.lexology.com/library/detail.aspx?g=9646f9cd-cb61-46c1-8515-cffaaf2fcb77

4.3) Volcker Rule analysis

Before checking any exclusion or exemption, we must determine is the fund can be sold or not to any U.S. person: “As the Company is not registered under the 1933 Act, nor under the 1940 Act, the Shares may not be offered or sold, directly or indirectly, in the United States of America or its territories or possessions or areas subject to its jurisdiction, or to U.S. Persons (i.e. a citizen or resident of the United States of America, its territories, possessions or areas subject to its jurisdiction, including the estate of any such person or corporations or partnerships created or organised therein) except in accordance with applicable exemptions from the 1933 Act and from the 1940 Act.”

As mentioned above, the fund is open to retail investors.

Based on the extract from the prospectus, we can determine that:

–        The fund is a Non-US issuer

–        It is sold outside of the US

–        the subscription is not permitted for US investors

–        the fund be authorized to offer and sell ownership interests, and such interests be offered and sold, through one or more public offerings (See Type of Eligible investors).

We could conclude that this fund shall not be considered as a Covered Fund as described in the 1940 Investment Company Act.

While other exclusions may apply, LEMANIK SICAV – EUROPEAN SPECIAL SITUATIONS RETAIL EUR A CAPITALISATION shall not be considered as a Covered Fund, relying on the exclusion from the Investment Company Act of 1940: Foreign Public Fund.

Sources :

https://funds360.euronext.com/opcvm/fiche/european-special-situations-retail-eur-a-capitalisation/historique

https://www.morningstar.it/it/funds/snapshot/snapshot.aspx?id=F0GBR04AYB&tab=4

https://www.lafinancepourtous.com/pratique/placements/produits-de-gestion-collective-opc/que-sont-les-opc/

https://www.journaldunet.fr/patrimoine/guide-des-finances-personnelles/1201825-sicav-definition/

https://epargne.ooreka.fr/astuce/voir/492561/code-isin

https://www.amf-france.org › Epargne-et-prestataires › OPCVM

https://www.boursedeparis.fr/centre-d-apprentissage/les-fonds-de-placement/types-de-fonds-de-placement

DISCLAIMER :

« Les présentes analyses réalisées au nom de l’association Financial Shared Brains reste son entière propriété au visa de l’article L. 111-1 du Code de la propriété intellectuelle (CPI). Toute reproduction est soumise à l’autorisation préalable de l’association, sans quoi l’association se réserve le droit de porter plainte. La contrefaçon est un délit civil puni par l’octroi de dommages intérêts, mais c’est également une infraction pénale (article L335-2 du CPI) qui peut entraîner jusqu’à trois ans de prison et 300 000 euros d’amende. »

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