The Alternative Investment Management Association (AIMA) the global hedge fund industry association has warned that the European Commissions draft directive on Alternative Investment Fund Managers could cost Europes pension fund industry up to EUR25 billion a year if implemented in its current form.
Andrew Baker, CEO of AIMA, said, This is an estimated figure but it shows the potentially enormous impact that the directive could have on Europes pension funds and in the longer term, Europes pensioners.
European pension funds have been increasing their allocations to alternatives over recent years because of the good returns, lower correlations with traditional asset classes and low volatility they provide.
With Europe facing strong demographic pressures as a result of an ageing population, pension funds will need strong growth and reliable returns over the coming years in order to meet future demand. If they suffer lower returns as a result of the directive, its not only Europes pensions funds but Europes pensioners of both today and tomorrow who will suffer.
It is because of consequences like this that there needs to be a proper full impact assessment conducted to determine whether the uncertain benefits of the directive justify the certainty of massive costs.
As it is currently drafted the directive will result in a major reduction in choice for Europes institutional investors and a big increase in costs and hence a significant reduction in returns. None of this is good for the competitiveness of the European financial services sector or indeed the economies of Europe as whole.
AIMA produced the estimated figure based on the estimated assets under management of the European pension fund industry, the estimated allocation to alternative investments by European pension funds, and the estimated reduction in returns they could face if the directive went through in its current form.