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1、Asset management and financial sponsors risk radarFinancial Institutions|September 20242Asset Management and Financial Sponsors Risk RadarOverview of trends and recent developmentsAsset management and financial sponsorsWhether it be digitalization,sustainable finance,increasing regulatory scrutiny o

2、r heightened corporate indebtedness,these challenges must be navigated,and the opportunities embraced by asset managers and other financial sponsors.Asset managers and other financial sponsors operate in a dynamic and changing market environment.This world of alternative finance to traditional banks

3、 has grown exponentially since the financial crisis of 2008,gathering pace over the last decade.Major global financial trends are shaping this sector.Whether it be digitalization,sustainable finance,increasing regulatory scrutiny or heightened corporate indebtedness,these challenges must be navigate

4、d,and the opportunities embraced.The sector is a diverse one,ranging from managers of a variety of wholesale and retail funds to private equity and credit,all of which are naturally affected in different ways.Although as much as USD 100 trillion of assets are now under management,the asset managemen

5、t industry is under pressure with cost and fee income pressure as investors demand ever more value for money.With the rise of tracker and other low-cost products,such as exchange-traded funds threatening traditional fee structures,many firms are looking to leverage technology to win efficiencies and

6、 differentiate themselves in the market.Others,especially mid-tier managers,are looking to consolidate with other players.Private equity now operates in an environment where the cost of capital is significantly higher than over the last decade.The recent slowdown saw investor exits trending lower;al

7、though carve-outs and middle-market buy and build strategies remained active.Deal flow is now improving due to slowing inflation and the beginning of interest rate cuts with more expected to follow.Alongside private equity,private credit has grown exponentially to USD 1.5 trillion in value(Preqin),s

8、erving smaller and mid-size corporates as an alternative to leveraged finance and public bonds.In the GP-led solutions space,it is providing liquidity to both sponsors and general investors.However,a lack of transparency and leverage is a cause of concern among regulators around conflicts of interes

9、t and systemic risk.The authorities are looking to address transparency,reporting and liquidity issues with new regulation.As is the case across the economy,the sector is broadening its use of technology,such as with tokenization.Most prominently,artificial intelligence is moving from back-office fu

10、nctions to more strategic uses,such as due diligence,research and reporting.By leveraging data,generative AI has the potential to improve financial sponsors investment decision making,and thus their alpha in markets.Sustainability goals,together with associated reporting and disclosure,represent bot

11、h key opportunities and risks for the sector.Thematic investing,impact funds and adaptation finance,as examples,are growing in importance in the market.At the same time,what were voluntary standards are becoming regulatory requirements,and while there is greater interoperability internationally,they

12、 can still constitute barriers to cross-border finance.Other dangers include a lack of data to support due diligence,perceived greenwashing through misstatements and mislabeling and,especially in the US,political push-back against environmental,social and governance goals.This Risk Radar looks at so

13、me the trends and risks faced by the sector.We look forward to engaging with you on these topics.3Asset Management and Financial Sponsors Risk RadarSummary of risks indexAsset management and financial sponsorsRisks&opportunitiesTechnology(5)AI and MLTechnology and talent managementCybersecuritySusta

14、inability(6)GreenwashingDisclosures and regulationDue diligenceSpecialized finance(7)Funds financeAdaptation financePrivate creditWorkforce redesign(8)Inclusive workplaceDiversity data and targetsExecutive exits Mergers&acquisitions(9)Regulatory hurdlesDue diligencePost-acquisition integrationLitiga

15、tion&enforcement(10)Climate-relatedTransactional disputesAntitrustTaxation(11)Intl tax and transfer pricingSustainability and transparencyCarried interestGeopolitical(4)Global instability SanctionsForeign investment review4Asset Management and Financial Sponsors Risk RadarRisk profileGeopoliticalRec

16、ent trends and developmentsGeopolitical risk impacts funds and private equity by increasing market volatility and uncertainty.It can lead to lower investment,higher costs and disruption to transactions.While its possible to overstate the market impact on equities,the fall out on local markets(e.g.,s

17、pecific assets)can be significant.Investors must navigate these risks carefully,considering factors like regional instability,regulatory changes,human rights considerations and economic sanctions.Having the right tools in place to identify and effectively manage risk is essential.While geopolitical

18、risk can negatively impact investments,returns may be boosted from assets in other perceived safe havens.Therefore,geopolitical risk is another(albeit increasingly)important factor to consider when constructing investment portfolios.2024 is witnessing elections in numerous economies.Associated risks

19、Risk Rating:ModerateBaker McKenzie solutions key issues we advise onRegulatory compliance and risk management:anti-bribery,corruption,sanctions and AMLCustomer and institutional relationship due diligenceDisclosures,filing and reporting requirements;regulator questions,audits and investigations Cros

20、s-border commercial arrangements and agreementsSanctions and export controls,and foreign investment reviewsProduct offerings and new market due diligence Third-party supplier complianceSince the end of the US-led world order,the last 20 years have seen increasing global instability characterized by

21、high-risk geopolitical events.This is having far-reaching and long-lasting effects on the investment climate and risk exposures.Investors also face reputational risks for being on the wrong side of a conflict.Given changing threat profiles,managers must identify vulnerabilities and assess the likely

22、 effects on investment values and their liquidity,developing contingency plans in response.The UK withdrawal from the EU has reduced the ease of access between these markets and increasing divergence in their regulation is leading to higher compliance costs.Global instabilityRecent financial and tra

23、de sanctions pose complex challenges for financial sponsors.The quickly changing sanctions landscape,especially in the wake of geopolitical events such as the war in Ukraine,means that financial sponsors must be vigilant about their investors and investments.Fund managers and PE general partners mus

24、t ensure that their investors or investments have not become the subject of newly imposed sanctions.This requires thorough due diligence and the implementation of sanction-specific risk-mitigation strategies.It is important to have in place appropriate systems and controls,and contractual provisions

25、 allowing proactive steps where investments may contravene sanctions law.SanctionsOver the last decade,increasing numbers of jurisdictions have adopted FIR-type legislation,such as the EU,UK,Japan and the US,significantly impacting funds and private equity transactions.In the US,the Foreign Investme

26、nt Risk Review Modernization Act,implemented by the Committee on Foreign Investment(CFIUS),expands the review of foreign direct investment transactions.It especially affects non-controlling investments in US businesses involved in critical technologies.Consequently,there are increased timing delays

27、and uncertainty over transactions involving non-US investors that might raise US national security issues.Foreign Investment Review(FIR)5Asset Management and Financial Sponsors Risk RadarRisk profileTechnologyRecent trends and developmentsThe asset management sector is under pressure to cut costs,sc

28、ale up and provide greater value,which is exemplified by the trend towards low cost,passive funds.Moreover,generally,for financial sponsors to pursue ESG-friendly investments,large amounts of unstructured and incompatible data must be analyzed.Technology can help.Artificial intelligence can efficien

29、tly and quickly process huge amounts of data to apply to ESG investing.It also has the potential to be used for client outreach and to make front and back offices more efficient,as well as identifying investment opportunities,reporting to clients and responding to the regulatory imperative of better

30、 monitoring employee conduct risks.Cloud technology poses potential systematic risks,as major providers could become a single point of failure.Associated risksRisk Rating:HighBaker McKenzie solutions key issues we advise onIntegrated global cyber and data security responseCloud computing5GAI and MLE

31、volving/increasing regulation of smart techContracting for new and improving techIP protection for smart techTech trade warsExternal tech investments/financingBlockchain and tokenizationSmart contractingESG dataRoboticsBoth AI and machine learning are increasing in use across a range of applications

32、,e.g.,portfolio optimization and to automating client interactions commonly with chatbots.The advent of generative AI has raised their profile even further.This is proving capable of summarizing research and due diligence,as well as writing technical documents such as financial analysis,and ESG repo

33、rts.AI requires proper management of its inherent risks.Transparency and explainability remain major legal risks that are exacerbated by weak AI governance.Regulation is increasing in this area,especially in the European Union.Artificial intelligenceIncreasing digitalization and heightened geopoliti

34、cal tensions mean that the risk of a cyberattack with systemic consequences has risen.The financial sector is particularly exposed due to the large amounts of sensitive data and transactions it handles.According to the IMF,the sector has suffered more than 20,000 cyberattacks,giving rise to USD 12 b

35、illion in losses over a 20-year period.That leaves aside regulatory penalties.A further risk factor is increasing reliance on third-party IT services providers,which is further accentuated by the adoption of AI products.Regulators expect businesses to take steps to improve the resilience of their IT

36、 systems and thereby to reduce the risk of attack.CybersecurityThe impact of digital transformation means that businesses in the sector must ensure that their workforce adapts to the new market environment re-skilling existing employees and recruiting new talent.Financial sponsors need to recruit mo

37、re digitally and IT-trained staff(e.g.,in AI),and,in doing so,they must compete against a range of businesses including technology companies and fintechs to secure and keep the best talent.Additionally,existing staff must adapt and upskill to work with new technologies or see themselves become redun

38、dant.Technology&talent management6Asset Management and Financial Sponsors Risk RadarRisk profileSustainabilityRecent trends and developmentsFinancial institutions are critical players in the transition to a carbon-neutral economy because of their role in allocating capital.Until recently,voluntary s

39、tandards and frameworks have predominated,but this is changing quickly with new regulations in many jurisdictions.The EU remains in the vanguard with its Sustainable Finance Plan,which centers around rules on taxonomies,corporate reporting,disclosures and due diligence.While the US has focused on en

40、forcement,new rulemaking is underway.As more jurisdictions introduce regulation,such rules may not always be compatible,creating obstacles for cross-border financial services,for example,to the marketing of funds.The replacement of the TCFD recommendations with global minimum standards from the ISSB

41、 should bring greater interoperability.Associated risksRisk Rating:HighBaker McKenzie solutions key issues we advise onCompliance with sustainable finance regulatory reforms,including pre-contract and public disclosures and reportingCross-border marketing of funds requirements and compatibility of E

42、SG standardsESG regulatory considerations for transactional product offerings(e.g.,green bonds,sustainable financings,etc.)Due diligence requirements including the EU CSDDD,internal governance,taxonomy compliance and definitional issuesMitigating the risk of exposure to greenwashing allegationsDiscl

43、osure,reporting and due diligence obligations of PE portfolio companiesSustainability-related disclosures to investors,whether mandatory under the EUs Sustainable Finance Disclosure Regulation(SFDR),or under voluntary standards,are quickly becoming the norm in most jurisdictions.These requirements a

44、pply at entity and product level,and distinguish between all financial products and those targeting or promoting environmental and/or social objectives.The challenges in implementation range from the availability of underlying ESG data to uncertainty over the interpretation of regulations.What quali

45、fies as Article 9-labeled funds under the SFDR,for instance,was subject to confusion and saw downgrading of funds to less green Article 8 labels.Disclosure®ulationPerforming quality due diligence is always important.For ESG-driven investments,the stakes are particularly high.ESG rating products c

46、an spot risks not identified with conventional financial analysis that nonetheless could affect financial performance because of additional operational costs or litigation liabilities.The dilemma is that ESG ratings are still open to interpretation,being only as good as the methodology and the data

47、employed,potentially lacking independent verification.Ratings also rely on public information,so their outputs will necessarily be subject to data gaps.Some jurisdictions have now introduced regulations on ESG ratings,while others are actively contemplating this step.Due diligenceThere is no general

48、 authoritative definition of greenwashing,but in the EU,the European Supervisory Authorities refer to it as a practice where sustainability-related statements,declarations,actions,or communications do not clearly and fairly reflect the underlying sustainability profile of an entity,a financial produ

49、ct,or financial service.As a consequence,consumers,investors and other market participants may be misled.Examples include cherry-picking,omission,ambiguity,exaggeration and misleading terms.Financial sponsors will be at risk of regulatory action and potential litigation.While to date there have been

50、 few cases brought,for example,in the US and Australia,the topic is high up in supervisors priorities.Greenwashing7Asset Management and Financial Sponsors Risk RadarRisk profileSpecialized finance Recent trends and developmentsDemand for private credit(of which there are various forms)has risen sign

51、ificantly,filling a gap left by traditional bank lending after the 2008 financial crisis.The market is now approximately USD 1.5 trillion and is expected to nearly double within the next few years.Direct lending,for instance,has offered higher returns compared to leveraged loans and high-yield bonds

52、.Most recently,however,in the syndicated loans market,banks are winning back market share,and direct lenders are under pressure to stay competitive.Private fund sponsors have had to manage a slowdown in M&A activity due to higher interest rates,making exits from investments more challenging.Private

53、equity firms are sitting on record amounts of unsold assets,making it harder to return cash to investors.GP-led liquidity solutions(e.g.,preferred equity(have become increasingly popular,also involving private credit.Associated risksRisk Rating:Moderate to highBaker McKenzie solutions key issues we

54、advise onBlended,impact,adaptation and transition finance,etc.Structuring and issuing ESG-related offerings and instrumentsPerforming due diligence on issues,accounts and auditors,including the sustainability attributes of contemplated transactionsLiaising with third-party ESG reviewsPreparing and m

55、anaging transactional and regulatory documentation and notifications,such as the prospectus and content of specific ESG reports and annual filingsReviewing conditions precedent(e.g.,legal opinions and auditor comfort letters)and drafting own opinionsAll taxation aspects of transactions In recent yea

56、rs,the private funds sector has developed various tools and strategies to help sponsors access further capital at the fund level during the life of the fund,when the fund sponsors capacity to draw capital from its existing investors may be constrained.These are commonly referred to as GP-led liquidi

57、ty solutions or GP-leds.The challenge for any sponsor is to determine which liquidity solution is most appropriate for the requirements of its funds,portfolio companies and investors.Here,among other matters,it is crucial to manage the conflicts of interest that often arise with GP-leds and to provi

58、de sufficient disclosures to limited partners.Funds financeThere is a very significant financing gap to speed up adaptation to the demands of climate change.The LSE and Grantham Institute explain that there is an opportunity for an exponential increase in private finance that will require ongoing co

59、llaboration between public and private actors.Adaptation investments,however,are often considered high risk due to their perceived and,at times,actual low returns,as well as the challenges associated with monetizing their benefits.A lack of information regarding climate risks makes it challenging to

60、 price risks accurately.There is also a lack of common market language,standard definitions and classification framework.Adaptation financePrivate credit is competing with banks to fund corporate acquisitions.It has grown exponentially to USD 1.5 trillion in value,serving smaller and mid-size corpor

61、ates as an alternative to leveraged finance and public bonds.It is diversifying into a wide range of assets from direct lending to commercial real estate and asset-based financing structures.However,private credit can be more exposed to borrowers than banks,which are more constrained in their lendin

62、g by regulation.Funding and liquidity pressures may also see a reduction in the availability of wholesale financing and/or a mismatch between asset maturities and liabilitiesPrivate credit8Asset Management and Financial Sponsors Risk RadarRisk profileWorkforce redesign Recent trends and developments

63、Inclusion,diversity and equity(ID&E)is a key social factor within ESG and requires careful navigation by firms.Research suggests that misconduct is often linked to governance failures.Greater diversity and a speak up environment improves the risk management culture,and studies show a decrease in the

64、 frequency of fines for misconduct.In the US,employers must contend with recent Supreme Court decisions striking down race conscious admission programs.This is making employers nervous about how to move forward with diversity without becoming the target of groups trying to minimize or eliminate ID&E

65、 advancements in the workplace.In contrast,where businesses hold themselves out as hiring on ID&E principles,a failure by managers to do so may leave them open to class action lawsuits.Associated risksRisk Rating:ModerateBaker McKenzie solutions key issues we advise onTransforming the Traditional Em

66、ployment Model(e.g.;New Staffing Models)Remote Working(e.g.;legal and regulatory issues,data privacy,trade secrets,tax,real estate)Digital Progress and its Impact on the Workforce(e.g.;rise of automation,use of AI,employee surveillance)Managing Business Change and Disruption e.g.,carve-outs,post-tra

67、nsaction integration and outsourcingProviding the policies and best practices necessary to achieve effective whistleblowing,inclusion and diversity program objectivesStrategic senior executive recruitment,termination and remunerationBusinesses of all types should ensure that all staff are treated eq

68、ually and protected from bullying and discrimination.Whistleblowing processes should be effective,and employers have duties to address the well-being and health and safety of their employees mental health especially being brought to the fore during the pandemic,with individuals working from home and

69、 less of a distinction between office work and home life.The focus on ID&E is also relevant for non-financial misconduct in the regulatory sector.Financial institutions and their senior managers may be held responsible for cultures that tolerate serious personal misconduct,bullying,racism,discrimina

70、tion or misconduct.With Gen Z entering the workforce,businesses that embrace responsible business practices and ID&E may gain a competitive advantage.Inclusive workplacesA key tool to drive forward ID&E is the collection of data on diversity and its reporting.An increasing number of businesses are b

71、eing encouraged and even mandated by law or regulators to collect and disclose employee and board data.While building trust between employers and employees is vital(frequently their consent is required),the collection and processing of personal data must comply with local data privacy laws,which var

72、y considerably.In some jurisdictions,targets to address underrepresentation are unlawful and can be no more than aspirational goals.Moreover,failure to achieve a goal can open up a business to scrutiny.Diversity data&targetsSenior staff often possess extensive knowledge and experience including over

73、 investment strategy.Their departure can lead to a significant loss of expertise and potentially affect a funds performance,as well as attracting regulatory scrutiny.Its important to protect confidential information,negotiate enforceable non-compete clauses and have a robust succession plan in place

74、.A well drafted employment contract and,when necessary,a suitably negotiated settlement agreement can help reduce the risks.Executive exits9Asset Management and Financial Sponsors Risk RadarRisk profileMergers&Acquisitions Recent trends and developmentsAfter the slowdown in private equity M&A in 202

75、3 due to inflation and higher interest rates,the outlook has been more positive in 2024.Deal flow is now improving due to slowing inflation and the beginning of interest rate cuts with more expected to follow.Whats more,it now looks as if the US will achieve a soft landing and avoid a long-predicted

76、 recession.PEs task of picking winners and losers must,however,still be done against an uncertain economic and political environment.Carve-out transactions are increasingly popular among businesses to release trapped value.This trend which originated during the market slowdown sees businesses review

77、 non-core assets to streamline their operations in the light of acquisitive interest from financial buyers.To maximise the benefits,its vital to manage the carve-out trilemma between deal certainty,timing and cost.Associated risksRisk Rating:ModerateBaker McKenzie solutions key issues we advise onGu

78、iding you through the complexities of carve-out transactions to maximise deal valueDesigning the deal structure and project managing the internal and external advisorsConducting due diligence including ESG mattersRegulatory issues such as merger control,foreign investment control and EU foreign subs

79、idiesAdopting a cost-effective and smooth transaction process,thus managing costs and ensuring advice is delivered in a swift and pragmatic manner.ESG considerations including disclosures and publication filingsAnticipating issues and proactively offering solutions in a manner than can be presented

80、to the Steering Committee/PMO for the project and the Board.Maintaining momentum throughout the entire duration of the project.In recent years,M&A transactions have faced heightened regulatory scrutiny.Antitrust authorities have tightened the grip of merger control,foreign investment control has bee

81、n expanded and in the EU a new regulatory regime on foreign subsidies has been introduced.Having a well thought-through and detailed roadmap for navigating the regulatory challenges is therefore becoming essential for M&A success.To pick merger control,as an example,its focus has broadened from trad

82、itional horizontal market-share analysis to new perceived threats for competition in different forms.PE buyers usually do not raise competition concerns,but given the growth in the size and importance of the sector this beginning to change.Of course,antitrust-triggered divestment remains an opportun

83、ity for PE.Regulatory hurdles In private equity M&A,due diligence involves extensive analysis of the target company and its environment to mitigate risks.In this respect,unlike publicly listed companies,private firms often lack comprehensive information,such as US SEC filings.Acquisitions are also t

84、ypically investment-driven rather than strategic.This necessitates thorough research of the business and industry sector.Given that the acquisition will often envisage potential workforce reductions,asset sales,and business reorganizations,deep legal due diligence is desirable,for example,labour law

85、,contractual agreements with vendors and any regulatory obligations to which the target is subject.Due diligenceAny large post-acquisition integration project requires a strong mix of business strategy,process management,technical expertise and ongoing communication.Once a plan is developed,practica

86、l issues will be decisive in determining how quickly it can be implemented and how soon the benefits of the integration can be realized.HR considerations,corporate and tax law issues,and regulatory approval and filing requirements should all be factored in,rather than leaving them to the implementat

87、ion phase.Its important for the project team to focus early on navigating roadblocks that might otherwise delay or frustrate the realization of integration goals.Post-acquisition integration10Asset Management and Financial Sponsors Risk RadarRisk profileLitigation and enforcementRecent trends and de

88、velopmentsLitigation and enforcement represent a key risk for financial sponsors.Whether disputes are climate-related,antitrust or transaction-based(a slowdown in the economy might cause this latter category to rise,as deals done during the M&A boom start to underperform,and parties look for redress

89、),they require time and resource,including senior management involvement.For climate-related claims,NGOs and claimant law firms typically take advantage of a client media ecosystem to promote reporting on litigation,attract regulatory scrutiny and exert reputational pressure on defendants.These tact

90、ics can be met with a coordinated and proactive media and regulatory engagement strategy to ensure a consistent response and avoid traps that could prejudice defense strategy.Associated risksRisk Rating:Moderate highBaker McKenzie solutions key issues we advise onDeveloping a strategy to minimize re

91、gulatory enforcement and litigation riskDisputes arising out of financing and M&A transactions with counterpartiesEngaging with regulators over possible enforcement action to resolve any contraventions,and settling any consequent enforcement action or guiding you through the regulatory processes adv

92、ocating your case Undertaking litigation where necessary,whether defending an individual or class actionsESG-related claims arising from investments,including greenwashing,and claims for breach of stewardship and fiduciary standardsClimate-related claims have emerged as the predominant disputes conc

93、ern for financial sponsors.There is now such a plethora of ESG-related legal and regulatory requirements around the world that many businesses struggle to keep up with them,although the current patchwork of voluntary standards and fragmented regulation is coalescing toward more consistent global obl

94、igations.The risk of such litigation will continue to arise through misleading or incomplete statements,or when products and marketing do not meet expectations.Regulators are focusing on this area,especially on issues such as greenwashing.Regulators as far apart as the US and Australia have brought

95、enforcement action for greenwashing,and more will likely do so.This will also lead to more civil-related claims.Climate-relatedFinancial sponsors face a variety of litigation risks.Some are inherent to the financing and acquisition of investments,although they can be mitigated through due diligence

96、and contractual protections.The incidence of litigation can grow in situations of increased risk taking,where sponsors act outside of their core markets,often driven by competitive lending.In situations of distress,sponsors and counterparties may more readily find themselves engaging in litigation.F

97、inally,as legal requirements grow(e.g.,foreign investment review regimes)and regulatory scrutiny becomes more intensive generally,the potential for disputes is heightened.Transactional disputesAs the footprint of private equity across economies grows,so do concerns over its competitive impact.This i

98、ncludes the potential abuse of dominant position in the market through roll-up strategies,where private equity buys up multiple smaller companies in one industry sector.The US Federal Trade Commission is paying close attention on antitrust grounds to such strategies that consolidate previously uncon

99、centrated industry sectors through multiple acquisitions to the detriment of competition.Follow-on class actions are a risk both in the US and in other jurisdictions.Other jurisdictions are likely to follow suite on antitrust.Antitrust action11Asset Management and Financial Sponsors Risk RadarRisk p

100、rofileTaxationRecent trends and developmentsShifts in the global tax landscape have increased uncertainty and risks associated with contentious tax matters.As tax authorities become more aggressive,proper planning is critical,as is the need to anticipate and defend against audits.The OECDs Two-Pilla

101、r Solution is intended to address the tax challenges arising from the digitalization of the economy.In particular,the implementation and application of the Pillar Two rules-which are aimed at ensuring large multinational enterprises pay a 15%global minimum Effective Tax Rate(ETR)on the income arisin

102、g in each of the jurisdictions where they operate-are complex and present challenges but also opportunities to financial sponsors in the efficient management of their tax liabilities.Associated risksRisk Rating:ModerateBaker McKenzie solutions key issues we advise onStrategic tax issues relating to

103、group structures,investments and senior executive rewardsGlobal tax developments,e.g.,Pillar Two,and the implications for your businessKeeping track of new developments in the jurisdictions key to your business,and advising on the implications,e.g.,carried interestTax aspects of mergers and acquisit

104、ionsManaging the transfer pricing implications of a fast-changing global landscapeEnsuring tax audit readiness and resolving disputes with tax authoritiesNavigating indirect tax development and impacts,including in relation to VAT,customs,and state and local taxesBusinesses are facing an ever-changi

105、ng international tax landscape combined with increased audit activity and tax authorities being proactive in challenging international tax and transfer pricing structures,with demands for even more data to substantiate their calculations.While regulated financial institutions are exempt from Pillar

106、One(although not necessarily any portfolio companies),Pillar Two brings unprecedented changes to the international tax system by introducing a 15%global minimum Effective Tax Rate(ETR)for large multinational enterprises.Further,multinational portfolio companies may need to adapt to the OECD proposal

107、s on taxing rights made under Pillar One,which currently remains under negotiation at the OECD level.International tax and transfer pricingTax is increasingly becoming a key part of the sustainability agenda.The tax transparency landscape has,in recent years,evolved from the adoption of voluntary st

108、andards,such as GRI-207,to legislative regimes,notably including the adoption of the EU Directive on public country-by-country reporting(which will require multinational groups to report specified tax information in relation to financial years commencing on or after 22 June 2024 at the latest).The f

109、ocus on increased tax transparency puts pressure on the use of tax havens and tax avoidance initiatives,which is an issue not only for financial entities and,where relevant,their portfolio companies,but also for their investors.Sustainability and transparencyLimited partners in private equity funds

110、have,for many years,benefited from an advantageous treatment of carried interest where it is taxed not as income,but as capital gain.This provision is under scrutiny in the UK,where the government has committed to reforming the existing rules(and has recently published a call for evidence from stake

111、holders),while being clear that it wants to protect the UKs position as a world-leading asset management hub.Should the existing tax treatment end or be curtailed(e.g.,limited to co-investment)in one major financial center,others may be tempted to follow,and this may lead to key individuals seeking

112、to relocate to other more favorable jurisdictions.Carried interest12Asset Management and Financial Sponsors Risk RadarHelping you to get the best results Band 1 Global-wide,EmploymentChambers 2010-2024Band 1 Global-wide,Intellectual PropertyChambers 2009-2024Band 1 Global-wide,TMTChambers 2024Band 1

113、 Global-wide,OutsourcingChambers 2024Band 2 Global-wide,Banking&FinanceChambers 2024Band 2-Global-wide,Corporate/M&AChambers 2024Emmanuel HadjidakisS+65 6434 2781Baker McKenzies global reach,strong connections with regulatory authorities,and experience make us the ideal adviser to guide financial in

114、stitutions through the panoply of issues in a rapidly changing environment.Contact us today to discuss your concerns.Risk Radars help you to get Ready for Change Click below to access our additional risk radars that we hope are of value to you.Our partners would be pleased to share their knowledge a

115、nd to introduce the experts in the areas of most interest.Message your regular Baker McKenzie contact or click here to get started.ResourcesThe Demystifying ESG Webinar Series showcases ESG-focused thought leadership webinars with insights and practical guidance for businesses considering what ESG m

116、eans for them.Listen to SeriesThe Next Decade in Fintech series provides key resources exploring how technology will transform the financial sector.Visit the SiteFT Big Deal explores new trends shaping transactions and how to unlock value.In this series,Baker McKenzie lawyers are joined by sector th

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