APAC managers focusing more on US in light of AIFMD, says Laven Partners

10 Jul, 2013

Asia-Pacific (APAC) managers are likely to increase their marketing efforts in the US and hold back on pushing their products towards European investors until the AIFMD is fully clarified, according to Laven Partners.

AIFMD restrictions surrounding remuneration and delegation of duties have frustrated a number of non-EU managers, while uncertainty around private placement has not helped matters either.

“Hong Kong and Singapore-based managers, which have not launched businesses in Europe yet, are instead focusing on the US and other jurisdictions until uncertainties over AIFMD are rectified and the rules are fully implemented,” said Petra Hollis, managing director at Laven Partners in London.

Hedge funds are also struggling to raise meaningful capital from European investors in comparison to other markets. Funds of funds and private banks in the region have shrivelled since the financial crisis following exposures to blow-ups or frauds including Bernard Madoff.

A KPMG and AIMA report in 2012 revealed 68% of managers had seen inflows from North America, compared with 53% from the EU, although this result is heavily skewed because the majority of allocations were derived from the UK and Nordics. A number of investors are bearish on Europe with Deutsche Bank’s 2013 Alternative Investor Survey predicting Europe would be the second worst performing region over the coming year, just behind Japan. Despite this, a growing number of European pension funds, struggling to meet liabilities, are increasingly allocating to hedge funds.

The transparency and disclosure requirements as mandated under AIFMD have alarmed some Asia-based hedge funds, particularly those in Singapore which have historically enjoyed a lighter-touch regulatory landscape.

“AIFMD liquidity requirements and transparency demands have made Singaporean managers apprehensive about marketing to EU investors, and some are trying to figure out what controls they need to have in place. Managers with entrenched relationships and operations in the EU are unlikely to pull out though,” said Rose-Marie Evius, associate at Laven Partners in Singapore.

However, there is optimism that once the rules are finalised, Asian managers will start to market towards EU investors. Non-EU managers will be able to take advantage of the passporting regime as of 2015, and Hollis said a number of Asia-based hedge funds had expressed an interest in doing so.

 “I believe in two years, a number of Asia-based managers, which have not accessed Europe before, will see the passport as an asset to attract investors in the region in 2015. However, the only caveat here is that there is no guarantee that the passport will be extended in two years time. The extension is subject to ESMA’s opinion which they are due to give in 2015. Unfortunately a bit of uncertainty still remains here,” said Hollis.

 Some optimists point out AIFMD could become a hedge fund brand in its own right much like Ucits, with non-EU managers embracing AIFMD-compliant structures if it leads to meaningful capital allocations. “Ucits obviously is a successful brand but it is marketing to a different – namely retail – audience, so there are enormous distribution benefits to be accrued. I think AIFMD-compliant funds could show potential but it all depends on how onerous the on-going disclosure requirements are and what regulators decide down the line,” commented Hollis.

A number of US managers, many of whom do not have much business in the EU or are gearing to launch, have also said they will not bother with EU investors due to AIFMD concerns. The full implications of AIFMD have only just been felt by US and other non-EU managers due to widely held misconceptions it applied only to EU firms. 

AIFMDLaven PartnersHong KongSingaporeAPACEUDeutsche BankESMAKPMGAIMA