According to the guidelines of Directive 2004/39/EC ("MiFID") dated 21.04.2004, Article 28 of CSSF Regulation No. 10-4 dated 22.12.2010 and Article 27 of Delegated Regulation (EU) No. 231/2013 dated 19.12.2012, management companies and managers of alternative investment funds ("AIFM") are obliged to draw up a Best Execution Policy ("Policy") in order to achieve the best possible trading results for their clients. Furthermore, with consideration of "Directive" 2014/65/EU regarding "Markets in Financial Instruments" dated 15.05.2014 ("MiFID II") and "Regulation" (EU) No 600/2014 regarding "Markets in Financial Instruments" dated 15.05.2014 ("MiFIR"), since 03.01.2018 there has been an obligation to take certain regulations regarding "Best Execution" in consideration. Due to its business orientation, the company is not primarily affected by MiFID II / MiFIR. In order to document the procedures that have already been practiced, the company would nevertheless like to have a "Best Execution Policy”, which, however, can only have the character of a basic process description/documentation.
2 Outsourcing Concept
FERI Trust (Luxembourg) S.A. ("Company" or "FTL") manages undertakings for collective investment in transferable securities ("OGAW" or "UCITS") and alternative investment funds ("AIF"). As part of its strategic business organization, the Company has decided not to provide all management services itself but, for reasons of efficiency, to outsource certain business areas to highly specialized service providers. The aim is always to provide investors with the highest level of expertise and flexibility.
(1) Portfolio management is outsourced for all UCITS and some AIFs. In this context, orders are placed with the portfolio manager. In this case the traded assets are mostly represented on regulated markets by securities.
As part of the initial due diligence, portfolio managers are reviewed to see whether they are authorized to carry out the sourced activities and have appropriate regulatory prerequisites such as their own execution principles for executing orders in financial instruments with professional clients ("Best Execution Policy").
In addition, the existence of current execution principles is regularly reviewed as part of the ongoing due diligence of service providers in the role of portfolio managers.
(2) For certain AIFs, FTL performs the role of portfolio manager itself. These AIFs are funds that invest almost exclusively in private equity-, real estate- and hedge fund- target funds. These target funds are not traded on a regulated trading market but canonly be ordered at an unknown price (next NAV) or acquired via commitments. Therefore, there are no comparative prices on different trading venues.
3 FTL in the role of portfolio manager
For certain AIF, FTL, as an authorized AIFM, performs the role of portfolio manager. As mentioned above, the AIFs are funds that invest in private equity-, real estate- or hedge fund target funds. In principle, these target funds are not traded on a regulated trading market but can only be ordered at an unknown price (next NAV) or acquired through commitments. Comparative prices do therefore not exist at different trading venues.
Investment decisions for private equity- and real estate target funds are made in the context of an extensive due diligence process that often takes the time of several weeks or months. The main economic, regulatory, tax and contractual conditions and documents are examined together with external partners such as tax advisors, auditors, lawyers, etc. During the negotiation of contracts and at the end of the process these negotiations can result in individual agreements which are reflected, for example, in subscription documents, limited partnership agreements and/or side letters.
Investment decisions for individual target hedge funds are made by FTL after completion of an extensive due diligence process. This process extends over several weeks or months for each target fund. The relevant target hedge funds are usually so-called offshore funds. Often these feeder funds are domiciled on the Cayman Islands, which themselves invest in local master funds. Among other investors, US Institutional investors could also invest their capital in these master funds.
Due to the breadth of the investment universe, FTL relies on the support of external service providers. During the investment process, the essential investment strategic, economic, regulatory, contractual and, if applicable, tax law conditions and documents are examined by external partners, in particular the investment advisor, the depositary of the AIF and, if necessary, also by tax advisors or lawyers.
A best execution policy in the classical sense of regulated trading markets is not applicable to this type of investment.
4 Final Provisions
This Best Execution Policy of FTL must be reviewed regularly and adjusted accordingly in the event of changes to the basic facts described in sections 2 and 3. As part of the outsourcing controlling (Section 2 (1)), the existence of a current Best Execution Policy at the relevant service providers is monitored.