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US hedge fund managers lag way behind European peers in AIFMD compliance, says survey

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Only 15 per cent of US hedge fund managers are now AIFMD compliant, compared to 82 per cent of European Managers, according to Preqin’s latest survey of global hedge fund managers.

While most UK- and Europe-based hedge fund managers are AIFMD-compliant, by contrast, there has been slow uptake among firms beyond the EU’s borders – a quarter of hedge fund managers based across Asia and Rest of World currently comply, but only 15 per cent of firms based in the US. 

A large proportion (42 per cent) of fund managers based outside the EU do not plan to raise capital from EU investors in the near future; of this group, 59 per cent are avoiding the region due to concerns about the AIFMD. Many managers based outside the EU are relying on investors to approach them through reverse solicitation. Even so, 38 per cent of US managers have chosen to avoid the EU completely, with most citing compliance costs and the risks arising from uncertainty and lack of guidance surrounding the directive. 

The negativity surrounding the AIFMD has reduced over the past six months, with 45 per cent of respondents to Preqin’s June 2015 survey believing the Directive will change the hedge fund landscape for the worse, compared to 58 per cent as of December 2014. 

Despite the majority of UK firms being compliant, not a single UK hedge fund manager surveyed expected the AIFMD to have a positive impact on their firm in the coming year. This compares to 55 per cent of non-UK EU hedge funds that believe it will have a positive impact. 

Only 15 per cent of US hedge fund managers, and a quarter of firms across Asia and Rest of World, are currently compliant with the AIFMD. This compares with almost all (90 per cent) of UK-based firms, and 82 per cent of fund managers across the rest of Europe. 

Two-thirds of firms globally reported that the costs of complying with the AIFMD are higher than expected. No fund managers reported the costs as lower than expected. 

The largest fund managers are more likely to be compliant with the AIFMD regulation; 46 per cent of fund managers with more than USD1bn in AUM are compliant, compared to 19 per cent of those with less than USD100 million. Forty percent of firms with less than USD100 million in AUM will not be marketing a fund within the EU at all. 

“As we approach the 22nd July anniversary of its implementation, the AIFMD has had a varied effect on the hedge fund industry,” says Amy Bensted (pictured), Head of Hedge Fund Products, Preqin. “While general negativity towards the regulation has fallen over the past six months, 45 per cent of fund managers still believe the AIFMD will change the industry for the worse, and only 23 per cent feel it will have a positive impact. Although in Europe most hedge funds are AIFMD-compliant, only a relatively small number of fund managers from beyond the EU’s borders have acquired compliance status. Despite having one of the highest levels of compliance (90 per cent), not a single UK-based fund manager felt the directive will have a positive impact on their business. 
“Many non-EU fund managers are choosing to avoid investment from the region completely, which may result in a reduced choice of funds available for investment for EU-based investors. The leading concern hedge fund managers have about the new regulation is the increased costs of complying with the EU directive, with two thirds of those managers that have acquired the passport stating the costs have been higher than they originally expected.” 

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