One of the biggest decisions for fund managers under AIFMD is whether or not to appoint an external AIFM. But as management companies, many of whom have experience supporting traditional managers under the UCITS framework, continue to espouse the virtues of outsourcing the ManCo function, alternative fund managers in different geographies are beginning to understand the benefits of going down this path.
"In the US, especially, fund managers are getting to grips with the concept that someone else can take over and run the governance function and do all the necessary risk management without necessarily giving up too much control," says Kavitha Ramachandran from Maitland.
"In terms of characteristics, they are looking for experience and expertise within the management company, and whether or not the AIFM can provide a one-stop-shop solution (by also hosting sub-funds on a platform) – there is a general view that managers prefer to go to one service provider and avail of a consolidated service rather than shopping around to choose multiple providers."
Fund managers should also consider the size of the group providing the AIFM service, with respect to strength of balance sheet, given that any such undertaking is a long-term commitment. "Gone are the days when a small team of people can operate as a management company. Substance has become an important element under AIFMD. We have clients coming to visit us in person to make sure we have the right infrastructure, human resources and the like, so substance really matters," says Ramachandran.
Then of course there's the fee consideration. Launching an AIFMD-compliant fund and appointing an external AIFM comes with additional fees but Ramachandran says that managers understand that they are paying those fees "for clear value-added services".
"I wouldn't say there's a race to zero as many appreciate the benefits to appointing an external AIFM to take care of all the heavy lifting under the Directive," notes Ramachandran.
Maitland has been onboarding a number of sub-funds and there is a healthy pipeline for the platform although some are also choosing to establish their own standalone funds. In this situation, the manager appoints Maitland as the external AIFM to take care of the operational and governance duties under AIFMD, leaving the manager free to focus on portfolio management as a delegate.
Maitland has recently added private equity and real estate to its AIFM offering and since the beginning of 2016, Ramachandran says that "the majority of clients we've been speaking with have been PERE managers, specifically real estate managers."
This interest could further strengthen following the approval of the reserved alternative investment fund (`RAIF') regime which is expected in the second quarter of this year.
"This will be a regulated fund product which will not come under the direct supervision of the CSSF but rather the AIFM and providing managers with the ability to market the fund in a short period of time. It's early days but there is a lot of anticipation with this product, and we think it will really appeal to the PERE manager community," says Ramachandran, who concludes:
"Alternative fund managers know that AIFMD is not going away. Many of them want to raise capital in the EU and are getting used to the fact that they are going to need the help of external parties. We think the trend of outsourcing the AIFM is set to continue."
