AIFMD: More Managers Plan to Merge or Close Funds, Survey Finds

Compared to July 2013, when 21% of Alternative Investment Fund (AIF) managers surveyed expected to have to take action in the aftermath of the Alternative Investment Fund Managers Directive (AIFMD), 38% of those polled in the same survey this year indicated they plan to merge or close funds.
By Janet Du Chenne(59204)
The costs of complying with regulation for alternative investment funds in Europe will force more fund managers to take action, including closing or merging their funds, a survey finds.

Compared to July 2013, when 21% of Alternative Investment Fund (AIF) managers surveyed expected to have to take action in the aftermath of the Alternative Investment Fund Managers Directive (AIFMD), 38% of those polled in the same survey this year indicated they plan to merge or close funds.

The new BNY Mellon survey, the third in a series conducted in conjunction with global business consulting firm FTI Consulting over the past year, canvassed 58 firms drawn from across Europe, the United States and Asia that operate, or are considering operating, a fund that would be subject to AIFMD. The survey respondents – comprising a mix of small, medium and large fund managers – collectively hold over $406 billion in assets under management. Thirty two per cent of these managers operate more than five AIFs with 22% of AIFs impacted by AIFMD.

In some cases, individual funds’ total expense ratios (TERs) will increase as a result of increased costs to fulfill the regulatory requirements. Thirteen per cent of respondents now expect costs to be passed on to the fund in full. In contrast, no respondents said they would pass on costs in this fashion in BNY Mellon’s previous study on AIFMD readiness, published in January 2014.

In addition, 29% of respondents said they will pass on some of the costs, compared to the study conducted in January 2014, where 26% of those polled said they will pass on some of the implementation costs onto the fund (impacting TER).

Other findings are that 74% of respondents expect regulatory reporting, followed by risk and compliance reporting at 58%, to incur the greatest one-off cost, with these two areas expected to account for

The survey also revealed shortcomings in compliance ahead of tomorrow’s deadline, despite 82% of managers canvassed confirming the required AIFM structure has been established to meet tomorrow’s July 22 deadline. Forty-four percent will not have received authorization from their local regulator by that date.

For many, work still needs to be done to comply with the key aspects of AIFMD. For example, 31% still need still need to implement risk and control systems, 36% have yet to update fund documentation, and 38% have yet to appoint a depository.

Managers expect further complexity from UCITS V, which seeks to align the UCITS regulatory framework with certain aspects of AIFMD and is expected to be transposed into local law in 2016. Looking forward to the UCITS V Directive, the most prevalent concern among survey participants (37% in both cases) is that UCITS V implementation costs will exceed original expectations, and that compliance will be more complex than anticipated.

Commenting on the survey’s findings, Hani Kablawi, head of Asset Servicing for Europe, Middle East & Africa at BNY Mellon, says: “With UCITS V pending and expected to be even more far-reaching in scope, now is the time for fund managers to start planning and to identify the lessons learned from AIFMD that can then be applied as they look to successfully navigate the changes that will bring around depositary functions, remuneration and administrative sanctions.”

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