Spotlight On... Connect
www.alterdomus.com AIFMD Implementation of Robert Brimeyer, Alter Domus
“One of the key objectives of such a European Directive is to create a level playing field between European jurisdictions.”
T Q Q
he Alternative Investment Fund Managers Directive (“AIFMD”) established harmonised regulatory standards for managers of alternative investment funds (“AIFM”). While new AIFMs had to comply with the Directive as of 21 July
2013, most existing AIFMs have until 21 July 2014 before the application of its provisions. With this significant deadline approaching, Robert Brimeyer, Group Head of Fund Services at Alter Domus, discusses where the market stands in terms of adoption of the Directive and its provisions.
What are the major impacts of the AIFMD on Real Asset Fund managers in practice?
Probably the biggest impact is a change of mindset. Where the industry has been largely exempt from regulation, the Directive is now imposing rules. Many players have been struggling to accept that their industry is now maturing and more formal processes need to be implemented for portfolio management, risk management and valuation. Moreover, the Directive clearly identifies different roles and responsibilities within the AIFM as well as with key service providers such as depositaries. The introductions of a depositary as well as the strict segregation of duties for the different aspects of the managers’ activities are probably having the strongest impact on the industry.
Does the Directive have a different impact on different jurisdictions?
The first significant impact I see is that the Directive forces fund managers to comply with the provisions if they want to raise money from European institutional investors. Although the Directive provides for some flexibility in
this respect, the investors themselves consider AIFMD compliance as a tick in the box characteristic for funds they want to invest in. This has certainly accelerated the move from off-shore locations like Cayman Islands and Channel Islands to on-shore jurisdictions in Europe.
One of the key objectives of such a European Directive is to create a level playing field between European jurisdictions.
In the past the different countries have positioned themselves with different investment vehicles and relating tax regimes to attract fund managers and their investment vehicles. Although the Directive is harmonizing the provisions for managers, the different fund vehicle regimes still exist in Europe.
Whilst some jurisdictions seemed to be privileged because of a large number of fund managers being domiciled in those countries (i.e. UK), some other jurisdictions have competitive advantages because they have already implemented some of the provisions well in advance of AIFMD. This is for example true for the role of the depositary in Luxembourg, where the function exists for many years already, and also for Real Asset funds.
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Where do the fund managers stand with the implementation?
Over the last 12 months, many fund managers have focussed on getting their AIFM license or on selecting and appointing a third party licensed manager. Although the process of requesting the license has been slow and painful in many jurisdictions, local supervisory authorities have made significant progress over the last weeks to get a decent number of licenses out before the July deadline.
Many managers now focus on implementing in practice the new processes that have been designed during the approval process. They now realise that for many operational topics such as reporting or cross boarder distribution no real market practice exists. Emergence of such best practice will take time.
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What main challenges do the fund managers face today while implementing AIFMD ?
Based on my discussions with Real Asset fund managers, the key challenge for many is to find a way to achieve more than just formal compliance with the provisions of the Directive. Embracing the spirit of the Directive and deriving real added value for the investors is a major concern today. Many fund managers realise that they need to focus more time and resources on formalizing process execution, risk assessment and monitor implementation of risk mitigation actions.
Implementing a segregation of duties between portfolio management, risk management and valuation is challenging for many fund managers. In the past, risk management has been deeply included in the day to day operations, although maybe not in a formalised way. Now the managers need to separate the risk management activities from deal execution and monitoring.
Another challenge for many managers is the choice of jurisdiction. Whereas the licensed manager is most of the time based in the country where the fund manager has most of its staff and operations, managers may decide to choose a different location to structure their fund vehicles based on more favourable legal, regulatory or tax regimes for fund vehicles. While the Directive clearly provides for cross border fund management, many questions on tax substance as well as cross jurisdictional distributions remain to be clarified.
Q How can service providers like Alter
Domus support fund managers in their endeavour?
Alter Domus is a leading provider of Fund and Corporate Services, dedicated to private equity houses, real estate firms, multinationals, private clients and private debt managers. Through our 28 offices and desks across 4 continents with approximately 650 professionals we provide highly customised services throughout the structures of our clients: servicing the fund vehicles, all intermediary SPV as well as the local asset holding or property companies.
We enable our clients to focus more time on front and middle office topics, such as portfolio and risk management while we coordinate all back-office activities, including accounting and financial reporting, corporate secretarial work, tax compliance as well as investor servicing and reporting.
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