Although commonly referred to as ‘the hedge fund directive’, in reality, AIFMD regulates the managers of all non-Ucits funds and indirectly the collective investment schemes (CIS) they manage.
This broad universe is captured by the AIFMD independently of investment strategies or target investors. CIS-covered products do not necessarily pursue an ‘alternative’ investment strategy but may be equity, bond, money market funds or real estate funds, ETFs, private equity vehicles, hedge funds, charity funds and many more.
The AIFMD covers both retail funds and institutional investment vehicles. Throughout Europe, over 20,000 such CIS are already authorised but a large number of CIS will for the first time appear in statistics in July.
Any non-European CIS is considered an alternative investment fund (AIF) and will fall under the scope of the directive if it is proposed to European investors or managed out of Europe.
Beyond current directives
The AIFMD seeks to bring a European quality label for AIF funds and managers through harmonised regulatory standards. A number of these requirements are very similar to those imposed under the Ucits and MiFID directives.
In many ways, they go beyond these directives, requiring additional own funds or an indemnity insurance, valuation of the assets, stricter rules regarding delegation of risk and portfolio management to external managers and important w requirements.
Additionally, each AIF is obligated to appoint a depositary for the safekeeping of its assets.
EU AIF managers meeting these requirements will benefit from a European passport and will be able to market AIF to institutional investors in all EU member states or provide management services to AIF domiciled in other member states. It is important to note that the AIFMD regulates a large number of retail CIS without providing a European passport for the distribution to retail investors.
Restructuring in motion
The AIFMD will affect new AIF managers in July, while existing managers have until July 2014 to submit their request for authorisation. In order to meet these tight deadlines, the industry is currently undertaking substantial restructuring. This is, however, being held up as only Level 1 of the directive is already adopted in a final form.
Implementing measures to be published by the European Commission have been expected and repeatedly delayed for months, in particular because of discussion around limits which will be imposed on managers when delegating portfolio and risk management within or outside Europe.
Because of the uncertainties around the implementation of AIFMD, the national law, final documentation by FSA and Treasury are still not available. Consultations were published in the past, including a consultation paper on marketing of unregulated collective investment schemes (Ucis). Wealth managers are advised to follow closely any developments and to expect preparation on short notice in the second quarter of 2013
