AIFMD Compliance Remains Elusive

The implementation date for AIFMD has finally arrived, yet compliance still remains a thorny issue. A BNY Mellon survey of 70 alternative investment fund managers (AIFMs) with $5 trillion in assets finds that a third of respondents fear not complying on time and negative financial implications; meanwhile, a recent Preqin survey of 220 hedge funds released last week estimated that only 22% are AIFMD-ready.

AIFMs seeking to be AIFMD-compliant have prepared by bolstering their back-office operations. KNEIP, which surveyed 90 AIFMs, found that 58% of alternative investment fund managers (AIFMs) are employing or considering employing new staff. Some have also outsourced their back-office function to a third party, according to Mario Mantrisi, chief strategy and research officer at KNEIP.

Yet managers have a gloomy outlook, said BNY Mellon, with 50% believing that their organizations would be disadvantaged over the medium term. Many will be using the transitional period to prepare; almost three-quarters (73%) do not expect to apply for authorization before 2014, and only 58% have a project team in place to deal with the issue.

North American managers remain slightly behind on compliance, which is hardly surprising. An estimated 51% will be compliant by July 2014, compared to 64% of European respondents, said Preqin.

Costs and future profitability are one of the largest concerns for managers; the KNEIP survey found that 29% of AIFMs ranked increasing costs as their primary concern, followed by 27% who believed that reputational damage from failure to comply as their top concern. The BNY Mellon study estimated that initial AIFMD project / one-off costs will range between $300,000 to over $1 million per institution.

Of the costs that will be incurred, regulatory reporting is seen to have the greatest time and cost implications followed by risk and compliance reporting, according to the BNY Mellon survey.

David Morrissey of SEI Investments says a big issue of AIFMD is how an investment manager is going to manage to meet the increased reporting requirements and transparency requirements under the directive. “There is going to be more focus and pressure on their own internal operations and we expect our client’s to look to SEI to see how we can help meet this challenge,” he says.

“It’s always been about the data and how you make that available to your clients in an intelligent and useful manner. The increased regulatory reporting requirements is something that has been coming along in a faster pace over the last few years and all we have been doing is tailoring and enhancing our existing solutions to meet those requirements.”

The coming months may see a decrease in the number of alternative funds; 67% of managers believe see a drop in the absolute number of AIFs, said BNY Mellon. Yet 54% see an increase in the amount of capital invested in alternative funds due to AIFMD.

Large depositaries such as BNY Mellon and BNP Paribas have expressed their readiness to comply with AIFMD.