Private placement rules not excuse for complacency, states IMS

InvestorsLegalOperational RiskRegulation
12 Jul, 2012

Private placement should not be viewed as a “big concession” by regulators, nor should managers become complacent about its implications, The IMS Group has said.

Jonathan Wilson, director of project consulting at IMS, speaking at an IMS seminar on AIFMD in London, warned private placement regimes could make it harder for hedge funds to market to accredited investors.

`”The private placement regime will only allow hedge funds to market to professional investors. The European Commission is using the MiFid definition to categorise professional investor which is a much narrower definition to what we have now. This could therefore make it harder for hedge funds to market to high net worth individuals,” he said.

Professional investor is defined under MiFid as a sophisticated investor with a solid understanding of risk.

The exemptions, Wilson added, were also subject to hedge funds reporting to regulators and adhering to disclosure requirements, and he urged managers not to take these provisions lightly. Furthermore, he warned some national regulators, particularly the French and Germans, may impose restrictions on private placement.

Private placement enables non-EU alternative investment funds to market to professional investors without a passport in any member state until 2018.

AIFMD has reappeared on the regulatory agenda as the July 2013 deadline nears. Fund managers have expressed concern about the implications of depositary liability, with one industry body estimating it could cost up to $6 billion. Reports suggesting the European Commission had backed down on depositary liability have been rebuked by several experts.

Standalone fund administrators could also be forced out of business if they are unable to find a depositary partner. This is a very strong possibility as many investment banks, which have built depositaries, will be loathe to share this infrastructure with their competitors.

Rules on leverage too have been criticised with industry figures warning ESMA’s methodology for calculating leverage is flawed and could lead to some hedge funds appearing more levered than they actually are.

AIFMDdepositary liabilityFranceGermanyleverageMiFidprivate placementregulationThe IMS Group