AIFMD a Catalyst for Convergence of Long-only and Hedge Fund Sector, Survey Finds

The Alternative Investment Fund Managers Directive (AIFMD) will lead to the convergence of the long-only and hedge funds, according to an industry survey of 51 fund administrators.
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The Alternative Investment Fund Managers Directive (AIFMD) will lead to the convergence of the long-only and hedge funds, according to an industry survey of 51 fund administrators.

The June 2012 survey, conducted by single platform investment fund software provider Multifonds and including responses from senior executives from across the industry globally, found more than two-thirds (69%) of industry respondents, with combined AuA of $16 trillion, believed AIFMD will accelerate the convergence.

Commenting on the findings, Keith Hale, Multifonds executive vice president for client and business development said: It is widely recognized that institutional investors, such as pension funds, are increasing their hedge fund allocations to diversify their asset class exposure, reduce the impact of market volatility and potentially boost returns. They expect higher risk management, transparency and liquidity resulting in alternative fund products that have more traditional, long-only fund characteristics. Similarly retail orientated absolute return funds, such as alternative UCITS, are driving traditional funds to incorporate hedge fund characteristics such as performance fees. These drivers aligned with the AFIMD will accelerate the convergence between long-only and hedge funds.

Hale noted the fund administration industry, as result of the above trend, is already experiencing consolidation of long-only and hedge fund administrators, blurring the former distinction between the two types of service provider.

Although the AIFMDs implementation deadline of July 22 2013 is looming, the research found that a fifth of respondents (20%) felt they were behind schedule and would not be ready within the next 12 months.

The survey also asked which elements of AIFMD will have the most significant impact on respondents. 57% see depositary liability as the most challenging element, followed by operational requirements and risk and liquidity management, both with 45%.

With funds having to conform to all the Directives rules to market to European investors when AIFMD comes into effect, AIFMD represents a significant opportunity for Europe. 63% agreed that AIFMD will make Europe a more attractive jurisdiction for alternative fund investors and 72% thought that non-EU managers would setup European operations to take advantage of AIFMD.

Aside from the impact of AIFMD, the survey highlights the other factors accelerating the convergence of mutual and hedge funds, a trend which over four fifths (86%) of respondents believe is set to continue. The two other main factors driving the trend are institutional investors increasing allocations to hedge funds as well as retail investors increasingly looking for absolute returns. Just under half (43%) of respondents believe that all three of these factors are significant catalysts for convergence.

(JDC)

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