Uncertainty over alternatives ruling

Uncertainty persists among fund management experts about the impact of the Alternative Investment Fund Managers (AIFM) directive despite its approval last week.

The European Parliament voted in favour of implementing the directive, which im­poses registration, reporting and initial capital requirements on any funds active in the alternative investment market, from 2013.

Despite being labelled the “hedge fund directive”, the ruling will apply to many forms of regulated fund, including non-Ucits retail funds, investment trusts and real estate funds, and will lead to changes in the day-to-day running of these vehicles. (article continues below)

The British Property Federation (BPF) urges caution from fund managers in the years ahead as it is not yet clear to many what constitutes an alternative investment vehicle.

Peter Cosmetatos, the BPF’s finance director, says the directive “could all still go horribly wrong”.

Amanda Rowland, a partner at PricewaterhouseCoopers (PwC), says it is important for fund managers to understand that the ruling is not the last say in the AIFM directive story.

“Fund managers have to remember that the AIFMD is not final and is still subject to change,” she says. “There is still a lot of work to be done and lots can change at level two.”

Rowland recommends that managers keep abreast of ­negotiations over the directive’s final form by staying in contact with professional organisations and the Financial Services Authority.

She stresses the importance of input from fund managers and says those active in areas such as joint ventures will have to fight to ensure they do not fall under its remit.

Although the directive’s shape will be determined in the coming years, Rowland says the industry should make immediate changes in its outlook.

“Fund managers will look at the structure of their funds from today and have to know if the AIFMD affects them,” she says, adding that many will have a clearer idea of its cost implications.

Peter de Proft, the director general of the European Fund and Asset Management Association, welcomes the European Parliament’s vote.

He says it will end the 18 months of uncertainty that non-Ucits fund managers have faced.

However, he adds that the result of the negotiation process to date is “far from optimal” and calls on the European Union to make revisions of investment management regulation fairer.

An industry survey by PwC found that only 2% of firms in the hedge fund, private equity and real estate sectors have drafted plans for operating under the directive, despite more than half of them expecting it to affect their ­profitability.