U.S. Hedge Funds Avoiding Europe over AIFMD, finds Preqin

A large portion of U.S. hedge fund managers are avoiding launching funds in Europe due to heightened costs related to the Alternative Investment Fund Manager Directive (AIFMD), a study from Preqin has found.

According to Preqin’s latest survey of global hedge fund managers, it found that only 15% of U.S.-based firms are compliant with the regulation. Elsewhere, only a quarter of firms across Asia and ‘Rest of the World’ are currently compliant.

Just under half of non-EU fund managers surveyed said they do not plan to raise capital from EU investors in the near future, and of this group, 59% are avoiding the region specifically due to concerns about AIFMD.

“Many non-EU fund managers are choosing to avoid investment from the region completely, which may result in a reduced choice of funds available for investment In EU-based products,” says Amy Bensted, head of Hedge Fund Products, Preqin.

“The leading concern hedge fund managers have about the new regulation is the increased costs of complying with the EU directive, with two thirds of those managers that have acquired the passport stating the costs have been higher than they originally expected.”

This is because many U.S. managers, that are not that prominent in Europe, are wary of the onerous costs of Annex IV reporting and appointing a European depository bank.

They survey also found that while the majority of U.K. firms are now compliant with the rules, not a single manager surveyed expected the regulation to have a positive impact on their firm in the coming year.

The results of the survey come as the European Securities Markets Authority (ESMA) announced on Wednesday that it has delayed its ruling on the AIFMD passport to non-EU managers by a week.

ESMA was set to release its findings from a wholesale review of the Directive and publish its advice to the European Commission on July 22.