AIFMD delays frustrating albeit manageable, survey shows

InvestorsLegalOperational RiskRegulation
25 Jul, 2012

AIFMD delays are frustrating hedge funds but most managers appear to be taking it in their stride, according to a survey by IMS, the compliance consultancy.

The final details of the directive were meant to be released on July 22 but have been pushed back until at least September.  Approximately 42% of managers are still assessing whether AIFMD will require them to undertake structural changes to their organisation despite the rules coming into effect next July.

“The delay is frustrating and a lot of managers are adopting a ‘wait and see’ approach. However, most managers understand the key points of the directive and what to prepare for.  The delay just means they will have to wait a little longer to fine tune any structural changes they need to make to their business,” said Peter Moore, head of regulatory compliance at IMS in London

Forty-two percent said AIFMD would impact their marketing strategies, while 23% doubted it would have any influence.  The European Commission has dropped some of the stringent, legally binding requirements on inter-governmental cooperation in favour of something based more upon mutual cooperation. The original provisions would have required regulators in non-EU hedge fund domiciles where managers were marketing to EU investors to impose AIFMD standards.

Furthermore, managers will be able to use private placement regimes until 2018, at which point they must apply for a passport. Jonathan Wilson, director of project consulting, said most managers seemed unimpressed by the passport provisions.

Depositary liability, which some industry bodies believe could cost up to $6 billion, was not that high on respondents’ concerns. Just 14% said depositary liability was an issue putting it behind risk management (21%) and capital requirements (19%).  “Managers are just waiting to see what the ultimate cost to the final rules will be before jumping to any conclusions,” said Moore.

Proposals on remuneration did not seem to faze managers either with only 12% saying it was an issue. ESMA, as mandated under AIFMD, recently proposed hedge funds defer between 40% and 60% of their bonuses over several years, while urged a substantial portion be paid in shares – the latter likely to be an issue for limited partnerships. Moore reckoned national regulators would adopt a “proportionality approach on remuneration.”

Some 69% also doubted regulation would help authorities manage systemic risk in the system. Perhaps more positively, 77% said AIFMD would have no impact on London’s standing as a financial hub. “Moving out of London does not enable managers to escape regulation as regulation nowadays is extraterritorial. London will always be a hub for talent and a place for investors to want to come to. Those managers who talk about moving to Monaco and Switzerland are small in proportion, and even then Switzerland is imposing tough new rules on managers of its own,” commented Moore.

AIFMDcapital requirementsdepositary liabilityESMAEUIMSLondonpassportprivate placementregulatorsremuneration