With less than a week to go before the deadline for Alternative Investment Fund Managers Directive (AIFMD), two industry surveys have found that many fund managers are under-prepared.
The directive brings alternative investment funds under European regulatory supervision. Under the new requirements investment managers have a transparency reporting requirement and should appoint a depositary. Asset servicing providers and third party fund administrators (TPAs) have adopted a depository lite offering and have subsequently received authorization by their relevant country regulators in which their depositaries are based.
These fund managers and their service providers have expressed their concerns over regulatory reporting, accuracy and liability. Regulators across Europe are enforcing the mandates of AIFMD and large institutional investors such as pension funds, family offices and insurance companies demanding transparency on behalf of their stakeholders. The directive will have a significant operational impact. These include increased requirements for due diligence, better risk and liquidity monitoring and new reporting and disclosure requirements as well as clearer marketing and communications rules.
Investment data automation specialist Confluence collaborated with Candice Bennett & Associates on a fund and asset servicing industry survey earlier this year. Between January and February a total of 60 interviews were conducted with alternative investment fund managers (AIFMs) and TPAs to assess perceptions of and attitudes toward AIFMD regulation and compliance.
Almost all AIFMs (95%) and TPAs (90%) believe they are very or somewhat informed on the requirements of AIFMD, and most confirm that their organization has completed a review of all data elements required to prepare AIFMD reporting (76% AIFMs, 67% TPA).
While AIFMs were more concerned with reporting to local regulators than any other category polled, more than half of TPAs (59%) say their organization will not accept liability for the quality of the reporting provided to the regulator.
On technology, the research found that though some larger fund managers have begun to build in house reporting solutions, one-third of AIFMs plan to use an existing vendor to help them solve the regulatory reporting problem. More than half (52%) say they plan to use a software solution for AIFMD transparency. The vast majority (82%) of TPAs say that their organization will support clients by offering an AIFMD transparency reporting solution; 38% say they will use a software solution.
Only 15% of respondents say they do not plan to use a software solution at all. The remainder – 42% of respondents, nearly as many those who plan to use software– are as yet undecided.
On AIFMD report filing, over half of AIFMs (62%) and TPAs (59%) plan to prepare their first set of AIFMD Transparency reports to the local regulator in either the third or fourth quarter of 2014. AIFMs are more likely to prepare the report in the third quarter (43%), while TPAs are more likely to prepare the report in Q4 (41%). Per the Commission de Surveillance du Secteur Financier (CSSF), AIFMs authorized between July 22, 2013, and June 30, 2014 will be required to submit their first reporting according to the dates below, so long as there is no shift in a reporting frequency of the AIFMD reporting:
Meanwhile, in a global survey by fund structuring specialist Alceda found some 47% of alternative investment fund managers have still not filed under the AIFMD.
The survey, commissioned by Alceda, the leading independent fund structuring specialist in Europe, in conjunction with Kepler Partners, the London-based research firm, was completed at the end of June. Some 56 alternative fund managers, with in excess of $300 billion under management, participated in the survey, representing firms in Europe, Asia-Pacific and the USA.
When asked if they were ready for the AIFMD, only 32% said they were already compliant. A further 19% said they were planning to submit an application before the deadline. Some 13% of the respondents are still unsure about their intentions.
European managers responding to the survey are generally well prepared, while managers in the rest of the world appear blindfolded. Some 17% of respondents said they preferred to maintain the UCITS access route, an existing and well established EU branded regulatory framework for asset managers, which was originally designed as a retail structure, but is increasingly used by institutional investors.
A number of firms surveyed were still undecided on which route to take, with 8% percent saying they were considering using third party service providers and 4% percent saying they would continue using the private placement route where managers can market within the EU under a specific private placement regulatory framework. However, this option will expire in 2018. Only four firms said they will not market within the EU.
When asked which aspects of AIFMD posed the greatest threats to their business, 30% percent of respondents cited depositary costs, remuneration and the end of private placement as their most serious concerns. However, a clear majority, over 40% believe in the benefits of a EU-wide distribution passport and increased investor confidence under the AIFMD brand, in particular, this group cited the opportunity to extend both the product range and the distribution of their products across Europe. There was also the perception that AIFMD would lead to more offshore funds moving onshore.
Georg Reutter, partner, Kepler Partners says: “It’s clear that the general understanding of the implications of AIFMD on the alternative fund management industry is low, with 41% of respondents to our survey stating that they have a limited understanding. In particular 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.
AIFMD Deadline: Fund Managers and TPAs Cite Key Concerns
With less than a week to go before the deadline for Alternative Investment Fund Managers Directive (AIFMD), two industry surveys have found that many fund managers are under-prepared.