AIFM Directive: One size does not fit all
Isle News, 10 October 2009 – The “one size fits all” approach of the controversial EU Directive on Alternative Investment Fund Managers is flawed, according to one representative of the island’s finance sector.
In its draft form the EU Directive on AIFM seeks to regulate EU fund managers, and as a result regulate the investment funds which they manage.
Peter Mills, Managing Director of Kleinwort Benson (Channel Islands) Fund Services Limited, is in agreement with the Financial Service’s recent comments on the AIFM EU Directive.
“There is a common agreement amongst the finance services industry that the proposed Directive has been drafted in a hurry, and is consequently capable of vast improvement,” said Mr Mills.
“Some of the proposals, like authorising alternative investment fund managers, are sensible and improve investor protection, but others create unnecessary and costly bureaucracy and reduce investor freedom.”
Mr Mills echoes the comments made by Sally Dewer, Managing Director of the Wholesale and Institutional Markets Division of the FSA, who says that given then diversity of the alternative investment fund sectors, a single, standardised approach would not work.
“For instance, the prime brokerage model for a hedge fund varies significantly from that used in the management of a private equity or real estate fund.
“Traditionally there has been no need for there to be a custodian or valuers for private equity funds and yet because the Directive is an all encompassing “one size fits all” proposal, it insists on every fund appointing these functionaries. It is also difficult to see the added value of these functionaries in a private equity vehicle when you consider the costs and reduction in investment returns for the long-term investor,” said Mr Mills.
“However the issues associated with the proposed Directive will affect people a lot closer to home than they realise. A reduction of investment returns in pension schemes would impact the viability and performance of those pensions going forward. A downside for everyone who has a pension.”
“A further key point is that EU investors may not be able to access investment funds from US or Asian fund managers and miss out on some great investment opportunities because the Directive will prevent those promoters from marketing their funds in the EU. This restricts the freedom of choice for EU investors.
“Furthermore if those markets respond with the same style of protectionist measures that the proposed EU Directive appears to adopt, then of course European managers will be disadvantaged as they will not necessarily be able to market their funds outside of Europe.
“Consider the position of an EU based private equity fund with costly unnecessary disclosures designed for retail investors, and a custodian to comply with the Directive competing for investors against a non EU fund which doesn’t suffer these additional costs. Investors are likely to plump for the more cost effective structure and this could lead to greater non-EU ownership of EU businesses – another unintended consequence of the Directive.”
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