British fund managers not ready for AIFM, PwC says

Britain’s asset management industry is still not adequately prepared for the Alternative Investment Fund Managers (AIFM) directive despite its expected impact on profitability, a poll by PricewaterhouseCoopers (PwC) suggests.

Only 2% of the industry has a plan for responding to the AIFM directive that is being implemented and only 16% has set up a dedicated working group to consider the implications and how to address them.

In a statement published together with the results of the poll, PwC urges the industry to “considerably ramp up its plans” for responding to the AIFM directive. It covers all funds not harmonised under the Ucits directive.

The result of the PwC poll comes as a surprise, perhaps more so because 41% of the asset management industry say in the same poll that they expect fees to increase. Over half of the respondents also say they expect their profitability to be hit by the implications of the directive.

James Greig, a partner at PwC Legal, says asset managers and service providers will have to step up their responses significantly. Thetransition from education to analysis and adaption can be a long and complicated pathway, he adds. Delaying their actions means that asset managers leave themselves a lot to address in an even shorter timeframe than expected. (article continues below)

The industry faces a period of increased fee pressure as a result of the financial crisis and liquidity issues. Amanda Rowland, another partner at PwC, says firms need to start addressing more seriously how their businesses will look once the implementation has been completed and how much of this additional cost they will pass on to their investors.

PwC’s poll also reveals that asset managers have become reluctant to bring funds onshore; only 13% of the respondents with offshore funds say they plan to bring them onshore owing to the directive.

European parliamentarians, representatives of European Union member states and European Commission officials recently agreed to a new draft text for the AIFM directive. This will be put to vote of approval at the European parliament’s plenary session on November 11.

The AIFM directive was first introduced in April 2009 and started a political tug of war between regulators and fund management lobby groups, including the European Fund and Asset Management Association.

Regulators aim to create a comprehensive and effective regulatory and supervisory framework that will improve transparency and efficiency while also ensuring the proper functioning of financial markets.

Asset managers, on the other hand, say the regulation will make the industry uncompetitive and unattractive to investors.

Today it seems unstoppable. However, regulators still have to draft many of the lower-tier rules, which gives lobby groups room to act.

So far, delays and uncertainty surrounding the directive have prevented some fund managers from launching new products and seeking investment. Yet Rowland says the agreed position is a considerable improvement on some of the earlier proposals.

PwC polled 186 senior industry figures for its survey.