Half of managers yet to apply for AIFMD authorisation, survey finds

14 Jul, 2014

Nearly half of all alternative investment fund managers have yet to apply for authorisation with their national regulators under the Alternative Investment Fund Managers Directive (AIFMD) despite the rules coming into play next week.

The survey of 56 managers with $300 billion in Assets under Management (AuM), which was commissioned by Alceda, a European fund structuring specialist in conjunction with Kepler Partners, a research firm, found 32% of firms were already compliant with the Directive. Nineteen per-cent said they would submit their application before the July 22, 2014 deadline while 13% acknowledged they were still unsure about their intentions. European managers appear to be well prepared although firms from the rest of the world are less so. Some 17% of respondents said they preferred to maintain the existing UCITS framework in order to access European capital.

“We found that alternative asset managers headquartered outside Europe are potentially sleepwalking into the unknown despite the potential impact on their business. Encouragingly the majority of managers don’t think that AIFMD will impact their strategy nor that it will negatively impact the continued growth of alternative UCITS funds,” said Georg Reutter, partner at Kepler Partners in London.

Nonetheless, some believe that authorised AIFMs will reap commercial benefits from the enhanced regulation. Eighty-two per-cent of fund managers told a study conducted by Multifonds in June 2014 that non-EU managers would likely establish European operations to take advantage of AIFMD.  A survey of fund managers in 2013 by BNY Mellon Alternative Investment Services (AIS) found 54% expected to see an increase in the amount of capital invested in alternative funds due to AIFMD.

Fund managers cited their ability to distribute their products more widely as being a key driver for this growth. One of the biggest draws of AIFMD compliance is the prospect of an AIFMD passport. Some optimists point out an AIFMD brand could emerge and potentially rival UCITS. Seventy-two per-cent of respondents to the Multifonds’ survey said the passport would help them gather assets The passport is likely to benefit fund domiciles such as Luxembourg and Ireland, as firms grow out their onshore businesses.

Just four per-cent told Alceda they would continue to use national private placement regimes to tap European capital. However, national private placement is up for review by the European Securities and Markets Authority (ESMA) in 2015 and could be scrapped completely in 2018. Only four firms polled by Alceda said they would shun marketing in the EU altogether.

Thirty per-cent of respondents to the Alceda survey said depositary costs, remuneration and the cessation  of private placement were their biggest AIFMD concerns. However, fears have generally subsided about AIFMD. The UK’s Financial Conduct Authority (FCA) has told managers that remuneration restrictions whereby firms must defer between 40% and 60% of their variable remuneration over three to five years while a substantial portion of their variable pay package must be disbursed in shares or approved financial instruments, will not apply to sub £1 billion managers.

Meanwhile, the costs of appointing a depositary have diminished markedly. The Multifonds’ survey found most industry participants expected to pay less than 2.5 basis points for depositary services. In 2013, that survey found 77% of respondents expected depositary costs to range between five and 25 basis points.

Global custodians had initially told fund managers that depositary costs would add another 30 to 40 basis points to their operational overheads when the AIFMD was first introduced. They further warned firms transacting in exotic markets or esoteric instruments that their costs would be even higher. The Alternative Investment Management Association (AIMA), the hedge fund industry body, issued  a statement in 2011 saying depositary reforms would amount to an additional $6 billion in costs for the hedge fund industry. 

However, this was dismissed as alarmist. This was evidenced in a more recent survey by AIMA, KPMG and the Managed Funds Association (MFA) which said the total spend by hedge funds on all regulations had been $3 billion so far. Some universal banks are even offering depositary services for as little as zero basis points assuming the manager purchases it as part of a bundled service offering that encapsulates prime brokerage, fund administration and possibly third party collateral management.

The Alceda survey also found 23% of firms to be worried about their Annex IV reporting obligations under the Directive. Firms that have filed their Variation of Permission (VOP) applications with the FCA by the July 22, 2014 deadline, will be expected to submit the highly forensic and prescriptive Annex IV report to regulators no later than January 31, 2015. A survey of 50 global fund managers by BNY Mellon in conjunction with FTI Consulting in January 2014 found 37% of firms to be unclear as to how they would address the regulatory reporting requirements outlined in Annex IV.

COOConnect will publish a guide to regulatory reporting in which Annex IV will be discussed in depth very shortly. In addition, COOConnect hosted a webinar on July 7, 2014 about the state of readiness at fund managers for Annex IV, which will available to view online shortly. 

AIFMDAlcedaKeplerFCALuxembourgIrelandUCITSMultifondsBNY MellonAIMAKPMGMFAAnnex IV