AIFMD will be a catalyst for the convergence of long-only and hedge funds, says Multifonds survey
More than two thirds (69 per cent) of the fund administration industry, with combined assets under administration exceeding USD16trn, believes AIFMD will accelerate the convergence of long-only and hedge funds.
This is according to the findings of an industry-wide survey on the impact of the Alternative Investment Fund Managers Directive, carried out by Multifonds.
Although the Directive’s implementation deadline of 22 July 2013 is looming, the research found that a fifth of respondents (20 per cent) felt they were behind schedule and would not be ready within the next 12 months.
The survey, which received more than 50 responses from senior participants across the global fund administration industry, also asked which elements of AIFMD will have the most significant impact on respondents. Fifty seven per cent see depositary liability as the most challenging element, followed by operational requirements and risk and liquidity management, both with 45 per cent.
With funds having to conform to all the Directive’s rules to market to European investors when AIFMD comes into effect, AIFMD represents a significant opportunity for Europe. Sixty three per cent agreed that AIFMD will make Europe a more attractive jurisdiction for alternative fund investors and 72 per cent 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 per cent) 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 per cent) of respondents believe that all three of these factors are significant catalysts for convergence.
Keith Hale, Multifonds’ executive vice president for client and business development, says: “It is widely recognised 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.
“This convergence poses both opportunities and challenges for the fund administrators. Those who can bring together the efficiencies of traditional fund processing with the complexities of alternative structures stand to gain market share, whereas those retaining a silo mentality and operating model, or those purely focussed on either traditional or alternatives, will be challenged in the medium term. As a result, the fund administration industry is already experiencing consolidation of long-only and hedge fund administrators, blurring the former distinction between the two types of service provider.”
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