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Fabrice Cuchet, Dexia Asset Management

The AIFMD will not alter the success of UCITS, says Dexia's Fabrice Cuchet

For European asset management firm Dexia Asset Management, there’s no immediate hurry to become compliant under the newly introduced AIFM Directive.

Many firms, it seems, do not see any clear advantage to being a first mover and are happy to take advantage of the one-year grandfathering period. Not that Dexia AM plans to leave it to the last minute though:

“We plan on becoming compliant at the end of the year. We are going to use our existing UCITS structure which is already UCITS-compliant in France, Luxembourg and Belgium,” explains Fabrice Cuchet (pictured), CIO and Global Head of Alternative Investment Management at Dexia Asset Management.

This should be quite a straightforward exercise given that many elements of the Directive are derived from the UCITS regime, particularly with respect to reporting and the appointment of independent depositaries. Cuchet says that Dexia will ultimately have a combined platform structure to support both its UCITS funds and onshore European hedge funds.

“The aim for Dexia Asset Management is to be able to manage UCITS and non-UCITS funds. I think the use of a combined structure (for both UCITS and AIFs) will be the trend for large asset management firms going forward.”

Given that Dexia already manages both UCITS and non-UCITS funds in France, Luxembourg and Belgium, creating one consolidated fund structure makes logical sense. Moreover, Dexia’s experience in managing UCITS products that already require the use of an independent custodian, independent valuations etc means that becoming AIFMD-compliant hardly requires a huge operational leap.

What will be a challenge, though, is reporting; specifically the volume of reporting as opposed to any particular complexities. Dexia manages approximately 300 funds, a third of which are non-UCITS.

“That means we have to put in place reporting for around 100 funds. That isn’t going to happen using an Excel spreadsheet. You need significant IT investment. However, nobody yet knows what the final reporting guidelines will look like. They are due to be published by ESMA at the end of September so until then we can’t get our systems operationally ready.

“With EMIR regulation coming in to Europe in 2014 and reporting requirements on short selling managers are facing more and more reporting demands. For us, that’s the main constraint to overcome before applying to become AIFMD-compliant,” comments Cuchet,

He confirms that Dexia is developing an internal reporting solution as opposed to outsourcing it.

While Cuchet is bullish on the prospects of the AIFM Directive he thinks that for AIFs to become as successful as UCITS will depend on significant buy-in from investors.

Many institutional investors will need to adapt their own internal policies and rules of investment and could lead them to favouring onshore rather offshore hedge funds.

“The future success of the Directive is linked to investors and their willingness to make these internal changes.

“Personally, I think we’ll see investors adapting their internal rules to favour AIFs versus offshore funds. If they buy an AIFMD-compliant fund they will have fewer constraints compared to offshore hedge funds so I think the future success of the Directive really depends on the behaviour of investors. This will be key.”

In all likelihood it will be a mix of both. Continental European institutions, for example, which tend to be more conservative, will likely be more open to AIFs compared to UK institutions which have for a long time been comfortable investing in offshore hedge funds.

One thing that Cuchet is sure of is that the introduction of the AIFM Directive does not signal the death knell of the UCITS regime. In his view, both UCITS and AIFs will have plenty of room to co-exist and, ultimately, serve the needs of two different sets of investors.

“UCITS-compliant funds have traditionally been bought by investors (typically retail) who require liquidity and transparency. That’s not the target of AIFs. They are aimed at institutional investors so for me they will be a complementary offering.

“I don’t therefore see any negative impact on the UCITS brand. The AIFMD will not alter the success of UCITS in my view.”

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