Fund mergers and master-feeder structures relating to undertakings for collective investment in transferable securities (UCITS)

KEY POINTS

UCITS mergers

In the case of a merger of a UCITS, the unit-holders² must be informed of the conditions of the merger and of its potential influence on the receiving UCITS. They must receive other information including:

• their rights before and after the proposed merger takes effect;
• a comparison of the differences between the UCITS regarding a synthetic risk³ of the key investor information and between their charges, fees and expenses;
• whether the management or investment company of the merging UCITS intends to undertake any rebalancing of the portfolio⁴ before the merger takes effect;
• details concerning any accrued income in the respective UCITS.

They must also be informed of the procedure for the unit-holders’ approval of the merger proposal and the date at which the merger will take effect.

Key investor information of the receiving UCITS must be provided to the unit-holders of the merging and receiving UCITS.

Master-feeder structures

Agreements and internal conduct of business rules between feeder UCITSFeeder UCITS: a feeder UCITS is a UCITS which has been approved to invest at least 85% of its assets in units of another UCITS. and master UCITSMaster UCITS: a UCITS fund with one or more feeder funds as investors. It cannot itself be a feeder UCITS or hold units of a feeder UCITS.

The agreement must stipulate the conditions for:

• providing a copy of precontractual documents, internal operational documents;
• delegating investment management and risk management functions to third parties;
• setting internal rules related to breaches and the use of derivatives;
• making any other information-sharing arrangements entered into with third parties.

In addition, the agreement must also include with regard to the basis of investment and divestment by the feeder:

• a statement of which share classes of the master UCITS are available for investment by the feeder UCITS;
• the amount of charges and expenses to be paid by the feeder UCITS;
• the terms on which any initial or subsequent transfer of assets in kind may be made from the feeder UCITS to the master UCITS.

The management company’s internal conduct of business rules must include appropriate measures to mitigate conflicts of interest between both UCITS or between the feeder UCITS and other unit-holders of the master UCITS.

Procedures in the case of liquidation of the master UCITS

Where the feeder UCITS intends to invest at least 85% of its assets in units of another master UCITS, it must submit to the competent authorities:

• its application for approval of that investment;
• its application for approval of the proposed amendments to its fund rules or instrument of incorporation;
• the amendments made to its prospectus and its key investor information.

Where a feeder UCITS intends to convert into a non-feeder UCITS, it must provide to the authorities:

• its application for approval of the proposed amendments to its fund rules or instrument of incorporation;
• the proposed amendments to its prospectus and its key investor information.

Where a feeder UCITS wishes to be liquidated, it must notify the authorities of its intention.

The feeder UCITS must inform the master UCITS once it receives the authorities’ approval.

Procedures in the case of merger or division of the master UCITS

The feeder UCITS must provide the competent authorities with its application for approval in the following cases:

• where it intends to continue to be a feeder UCITS of the same master UCITS;
• where it intends to become a feeder UCITS of another master UCITS;
• where it intends to convert into a non-feeder UCITS;
• where it intends to be liquidated.

The feeder UCITS must inform the master UCITS once it receives the competent authorities’ approval.

The law of the EU country which applies to the agreement between the depositaries of the master UCITS and the feeder UCITS must also apply to the information-sharing agreement between the depositaries.