Research shows negatives abound on AIFMD
29 July 2013
News, Asia, Global
By Toby Garrod
New research by BNY Mellon points to significant uncertainty about Alternative Investment Fund Managers Directive (AIFMD) requirements. The firm surveyed 70 respondents from Europe, Asia, the US and Latin America from companies with an accumulated total of over US$5 trillion assets under management.
Key findings from the survey include:
Half the survey respondents believe that uncertainty remains within their organisation, while a third reveal a fear of not complying on time and of negative financial implications.
Fifty percent believe that their organisation will be disadvantaged in some way by AIFMD over the medium term. Only 18% believe there to be a benefit.
While 58% have a project team in place to deal with the issue, 73% do not expect to apply for authorisation before 2014.
As the industry comes to terms with the implications of a heightened regulatory environment, respondents believe that initial AIFMD project/one-off costs will range from between $300,000 to over $1 million per institution.
Regulatory reporting is seen to have the greatest time and cost implications, followed by risk and compliance reporting. Respondents remain uncertain about the cost of depository services, which are not included in the estimates above. Additionally, 88% believe that the cost of funds will increase as a result of AIFMD.
Sixty seven percent believe that AIFMD will result in the absolute number of alternative funds decreasing, while 39% believe that their organisation will close some funds, move funds outside of the EU or merge funds together.
Two thirds of survey respondents believe the cost and complexity of compliance will lead to reduced choice of opportunities for investors.
While fund managers do not expect to be the winners in this regulatory change, those surveyed believe that the key benefits of AIFMD will be seen mostly by investors and in the industry's ability to distribute more widely, making funds more accessible to the end user. 54% of respondents expect to see an increase in the amount of capital invested in alternative funds due to AIFMD.
The findings indicate that over half of respondents do not expect the AIFMD requirements to be adopted by other jurisdictions. Sixty two percent believe that investors will keep their money in European-domiciled funds rather than invest in jurisdictions with less onerous requirements.
"Despite today being the deadline to apply for authorisation under AIFMD, much work remains for the industry to achieve full compliance, with our research suggesting that the burden of regulation could even lead to a lower number of funds available to investors," observes Hani Kablawi, EMEA head of asset servicing at BNY Mellon, in response to the findings. "Despite attempts to improve investor access and information, the industry is challenged by the complexity of implementing AIFMD and the need to comply with it in the future. This is a demanding time for the industry as it grapples with the slew of further regulation under implementation or discussion across Europe."
A separate survey from software provider Multifonds in mid-July was more upbeat on the impact of AIFMD.
“Overall, the institutional investors and global inflows will likely outweigh the potential exodus of funds from EU domiciles, although it may take a few iterations of the directive before it goes global as UCITS III did in the 2000s,” says Keith Hale, Multifonds’ executive vice president for client and business development. “Although 83% of our respondents believe they are now ready for AIFMD, or will be in July, there is still much on-going discussion around reporting and cost. In our opinion, that readiness is going to be tested over the coming months and the industry might find it is not as ready as it thinks it is.”
According to the survey, Luxembourg and Ireland will be the biggest winners, with London lagging behind. Eighty nine percent of respondents placed Luxembourg in their list of top three domiciles likely to be most successful under AIFMD in attracting new business or funds re-domiciling. Ireland came second (selected by 73% of respondents) and the UK came third (selected by 50% of respondents) – a less positive assessment of London’s prospects than often made.
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