AIFMD will reduce choice and increase costs for managers and investors, says survey
Research by BNY Mellon points to significant uncertainty about the requirements of the Alternative Investment Fund Managers Directive (AIFMD), despite Monday's first deadline for authorisation.
BNY Mellon surveyed 70 respondents from Europe, Asia, the US and Latin America from companies with an accumulated total of over USDD5trn assets under management.
Half the survey respondents believe that uncertainty remains within their organisation, while a third reveal a fear of not complying on time and of negative financial implications.
Fifty per cent believe that their organisation will be disadvantaged in some way by AIFMD over the medium term. Only 18 per cent believe there to be a benefit.
While 58 per cent have a project team in place to deal with the issue, 73 per cent do not expect to apply for authorisation before 2014.
As the industry comes to terms with the implications of a heightened regulatory environment, respondents believe that initial AIFMD project/one-off costs will range from between USD300,000 and over USD1m per institution.
Regulatory reporting is seen to have the greatest time and cost implications, followed by risk and compliance reporting. Respondents remain uncertain about the cost of depository services, which are not included in the estimates above. Additionally, 88 per cent believe that the cost of funds (TER) will increase as a result of AIFMD.
Sixty seven per cent believe that AIFMD will result in the absolute number of alternative funds decreasing, while 39 per cent believe that their organisation will close some funds, move funds outside of the EU or merge funds together.
Two thirds of survey respondents believe the cost and complexity of compliance will lead to reduced choice of opportunities for investors.
While fund managers do not expect to be the winners in this regulatory change, those surveyed believe that the key benefits of AIFMD will be seen mostly by investors and in the industry’s ability to distribute more widely, making funds more accessible to the end user. Fifty four per cent of respondents expect to see an increase in the amount of capital invested in alternative funds due to AIFMD.
The findings indicate that over half of respondents do not expect the AIFMD requirements to be adopted by other jurisdictions. Sixty two per cent believe that investors will keep their money in European-domiciled funds rather than invest in jurisdictions with less onerous requirements.
“Despite today being the deadline to apply for authorisation under AIFMD, much work remains for the industry to achieve full compliance, with our research suggesting that the burden of regulation could even lead to a lower number of funds available to investors,” says Hani Kablawi, EMEA head of asset servicing at BNY Mellon. “Despite attempts to improve investor access and information, the industry is challenged by the complexity of implementing AIFMD and the need to comply with it in the future. This is a demanding time for the industry as it grapples with the slew of further regulation under implementation or discussion across Europe.”
BNY Mellon says it is “AIFMD-ready” and able to provide full depositary services to asset managers impacted by the directive.
AIFMD will impact non-UCITS funds, with implications for managers both inside and outside of the EU (dependent on their distribution of funds within the EU). The directive seeks to harmonise and make compulsory the regulation of Alternative Investment Fund Managers (AIFM) based within the EU or who sell their products to EU investors. The AIFMD aims to create greater transparency and investor protection by aligning the management and safekeeping of Alternative Investment Fund (AIF) assets to the rules governing UCITS (Undertakings for Collective Investment in Transferable Securities) funds. Early applicants will be able to leverage the AIFMD passport opportunities for cross-border European distribution.
“Over the last 18 months we have invested strongly in our European infrastructure and personnel so that we are ready to support those clients who become authorized early under the directive,” says Kablawi. “Whilst the new regulation has added a greater level of complexity to our work as a depositary to alternative investment funds, the solutions that we have in place will allow our clients to continue to operate efficiently and cost effectively within the new environment.”
“There is no doubt AIFMD represents a significant change for the funds industry across Europe and beyond,” says Peter Craft, BNY Mellon’s EMEA head of trustee and depositary services. “It transforms our duties and introduces significant new liabilities. We are leveraging the strength of our team across Europe to ensure we are ready to support managers in this pressurised operating environment.”
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