The Alternative Investment Fund Managers Directive (AIFMD) has undergone meaningful changes since it was first unveiled to a horrified alternative investment management industry in 2009. None were more horrified than private equity managers (who thought regulators had misunderstood what they did) but many hedge fund managers read the AIFMD as an invitation to leave the European Union (EU). Five years on, the AIFMD looks much less threatening.

Depositary costs, which initially looked prohibitively expensive, have fallen dramatically. Global custodians – charged with the safekeeping of assets, compliance oversight and cash flow monitoring - originally hinted at charging 40 basis points or more on top of basic custody fees to take on strict liability for lost financial assets. Today, they are pricing their role at no more 2½ additional basis points, and will even do the job for nothing if depositary services are purchased alongside prime brokerage or fund administration.

Predictions of onerous marketing restrictions, which many managers warned would prevent European institutional investors from gaining exposures to non-EU funds, have yet to be fulfilled. Non-EU fund managers can access European investors through national private placement regimes, provided they appoint a depositary “lite” and submit an Annex IV report to regulators in each jurisdiction where they market the fund. Even those American managers which elected to boycott an AIFMD-compliant Europe are considering a return as the rules are settled.

Of course the AIFMD still sets challenges. Weeks after the 22 July 2014 implementation date, a number of depositaries and even more would-be AIFMs had yet to receive regulatory authorisations. Plenty more have yet to settle their attitude towards the AIFMD. A survey of 58 global fund managers that were either running or planning to run an AIF, published the day before the deadline, found that 44 per cent of respondents had not yet obtained approval from a European regulator to become an AIFM. The same study, conducted by BNY Mellon, found 38 per cent had yet to appoint a depositary either.

A crowded regulatory agenda, and the aggressive timetable to which regulators have worked, means fund managers have got used to the idea that regulatory deadlines no longer insist on full compliance from the outset. It is not an inappropriate attitude. Fund managers now accept that AIFMD is almost certainly just the first in a long line of directives to bear the AIFMD label. The UCITS directive that governs mutual funds, and which now dates back to 1985, is on its fifth iteration, and a sixth is on its way. AIFMD I marks the end of one journey, and the beginning of another. As the industry embarks on that fresh journey, I hope our readers find this Guide a useful vade mecum.

Charles Gubert