The hurdles and uncertainty associated with the financial directive are proving too troublesome for some managers.
The chief operating officer at one hedge fund told Cerulli that US and Asian managers are ignoring Europe, concentrating greater marketing efforts on domestic investors instead.
Rewards outweigh the cost?
“At the crux of the debate is the question of whether the financial rewards outweigh the compliance costs,” said Barbara Wall, Europe research director at Cerulli, noting that the cost of becoming AIFMD compliant is estimated at between $300,000 (€282,127, £198,712) and $1m.
Among the requirements to becoming fully AIFMD compliant include the appointment of a depositary bank, restrictions around remuneration, and additional risk oversight requirements.
"European allocators could effectively be denied some very talented managers, and returns they badly need in Europe's low-interest rate, low-returns environment.”
In return, AIFMs can in theory distribute funds across the EU without impediment.
More analysis needed
The situation for EU managers of non-EU funds and non-EU managers of non-EU funds is, however, more complicated.
While Guernsey, Jersey, and Switzerland have been cleared by the European Securities and Markets Authority (ESMA) to use the AIFMD passport; the US, Hong Kong, and Singapore have been told that more analysis is needed before a ruling can be made.
“The delay is cause for concern. A speedy decision is needed, however, we are not hopeful of one,” said Wall, noting that the huge regulatory divergences between the EU and the US, particularly around the definition of an accredited investor, is an obstacle to equivalence that will not be easily resolved.
Ignoring European investors
David Walker, director of European institutional research at Cerulli, said that it is a cause for concern if Europe’s growing web of regulation affecting alternatives managers means US and Asian managers simply ignore European investors.
“European allocators could effectively be denied some very talented managers, and returns they badly need in Europe’s low-interest rate, low-returns environment,” Walker said.
Managers without passporting rights can use the National Private Placement Regimes (NPPR). However, a lack of uniformity across the EU with regard to interpretation of NPPR is creating confusion.
According to Cerulli, the differences between countries on AIFMD regulatory reporting rules have resulted in some non-EU managers marketing into just a handful of jurisdictions, while others are moving onshore or launching UCITS.
There is also no certainty as to how long NPPR will exist.