By Kavitha Ramachandran, Maitland Group – The EU’s Alternative Investment Fund Managers Directive (AIFMD) has essentially created a vast ‘Fortress Europe’. As of 22 July this year, managers of alternative investment funds must become authorised under the Directive as ‘AIFMs’ (Alternative Investment Fund Managers) or accept the burden and uncertainty of the private placement regimes if they want to market their funds in Europe.
Some fund managers may choose simply to walk away from the European market and not bother with the rigours of the AIFMD at all. But many will not. Europe is a huge market with its fair share of the global USD6trn assets in alternatives up for grabs. The European and US markets are similar in many respects, and it is a natural point of expansion for many US hedge fund managers.
Bear in mind that AIFMD may be a piece of regulation, but its ultimate aims are more or less in line with market trends. As the alternative investment market matures, investors are increasingly demanding far more information and transparency from fund managers in return for their capital. Transparency is the new name of the game – this would be the case even if AIFMD didn’t exist.
For US-based hedge fund managers that already have a presence in Europe – and are confident they can meet the Directive’s substance and reporting requirements – it makes sense to apply for AIFM authorisation. But what about US managers with European investors but no European presence? Or US managers with no current European investors, but the desire to expand into Europe in the future?
For these managers there is another way in – the partnership approach. Here the US fund manager partners with a third party, typically a company with fund administration expertise. The third party is already in Europe, with an authorised AIFM up and running, such as Maitland’s M.S. Management Services which is based in Luxembourg. This entity becomes the AIFM to the funds, appoints the US manager to do the portfolio management and assumes responsibility for all of the other duties envisaged in the AIFMD including risk management, compliance monitoring, regulatory reporting and investor due diligence. It will also appoint a depositary as required. Should the EU passporting for non-EU managers and funds be made available in 2015, this opens up “Fortress Europe” for these funds/managers and ensures that they will be ahead of the curve.
Maitland has also established its own comprehensive AIFMD compliant SIF (Specialised Investment Fund) platform, MS SICAV SIF, for product construction and innovation in the EU. This is a Luxembourg (EU) domiciled alternative investment umbrella fund with multiple sub-funds each with flexible investment strategies allowing managers to invest in a range of alternative asset classes and have their “own brand”. The SIF has appointed a depositary and auditor that are well established and regulated in Luxembourg with a global presence. Both are independent of Maitland.
Being an independent third party fund administration business with over USD200bn assets under administration spread over key fund domiciles, Maitland is able to provide both fund managers and investors with the necessary transparency, independent oversight, controls and segregation of functions, as well as the benefit of our technological platform for reporting requirements, all of which are required under the Directive. The joint solution described above – the third party AIFM and the SIF – gives clients access to an EU ready-made product and market, the “EU passport”.