- U.S., Hong Kong and Singapore are still waiting to be able to use the AIFMD passport
- Those without the passport can use NPPR
Alternative Investment Fund Managers Directive (AIFMD) headaches are causing some non-EU fund managers to forgo European investors, according to the latest issue of The Cerulli Edge-Europe Edition.
Cerulli Associates, the global analytics firm, says the hurdles and uncertainty linked to the financial directive are proving too troublesome for some managers. The chief operating officer of one hedge fund told Cerulli that U.S. and Asian managers are ignoring Europe, concentrating greater marketing efforts instead on domestic investors.
"At the crux of the debate is the question of whether the financial rewards outweigh the compliance costs," says Barbara Wall, Europe research director at Cerulli, noting that the cost of becoming AIFMD compliant is estimated at between US$300,000 (€278,000) and US$1 million.
The directive subjects fully compliant AIFMs to a number of obligations, most notably the appointment of a depositary bank, restrictions around remuneration and additional risk oversight requirements. In return, full-scope AIFMs can in theory distribute funds to institutional investors across the EU without impediment.
The situation for EU managers of non-EU funds and non-EU managers of non-EU funds is, however, more complicated. While Guernsey, Jersey and Switzerland have been cleared by the European Securities and Markets Authority (ESMA) to use the AIFMD passport, the U.S., Hong Kong and Singapore have been told that more analysis is needed before a ruling can be made. "The delay is cause for concern. A speedy decision is needed--however, we are not hopeful of one," says Wall, noting that the huge regulatory divergences between the EU and the U.S., particularly around the definition of an accredited investor, is an obstacle to equivalence that will not be easily resolved.
David Walker, director of European institutional research at Cerulli, adds it is a cause for concern if Europe's growing web of regulation affecting alternatives managers means U.S. and Asian managers simply ignore European investors. "European allocators could effectively be denied some very talented managers, and returns they badly need in Europe's low-interest rate, low-returns environment," says Walker.
Managers without passporting rights can use the National Private Placement Regimes (NPPR). However, a lack of uniformity across the EU with regard to interpretation of NPPR is creating confusion, points out Cerulli. It notes that differences between countries on AIFMD regulatory reporting rules have resulted in some non-EU managers marketing into just a handful of jurisdictions, while others are moving onshore or launching UCITS. Also, there is no certainty as to how long NPPR will exist.
"Alternatives managers depending on reverse solicitation rely on being 'found' and then pursued by prospective clients--a fairly tall order--whereas regulation-compliant rival managers will be able actively to promote the benefits of their strategies, which does seem a rather easier path to sales," says Walker.