AIFMD will equal UCITS—if it can address cost
21 June 2013 Luxembourg
Image: Shutterstock
Over half of respondents to a survey said that they believed AIFMD will become an international standard similar to UCITS.
The survey, conducted by Multifonds following the release of the AIFMD Level II measures, reveals that 59 percent of respondents, who collectively manage and administer assets exceeding $13 trillion and $28 trillion respectively, believe AIFMD will become an international standard for distributing alternative investment funds (AIFs) globally like the established UCITS brand.
Keith Hale, Multifonds’ executive vice president for client and business development, said: “Convergence between traditional and alternative funds will have a fundamental impact on the way that managers and administrators service the fund industry. AIFMD appears to be a significant new catalyst in accelerating this convergence trend, as demonstrated in our survey results where 83 percent of respondents agreed that convergence will continue.”
However, the cost of complying with the new regulation was revealed to be a real concern for fund managers and service providers alike.
Since the publication of the Level II text, the costs of implementing AIFMD have increased according to almost three-quarters (74 percent) of respondents who have either seen a rise in the implementation costs for AIFMD (52 percent) or still don’t know the extent of their costs (22 percent).
Depository costs specifically remain a persistent concern, with 47 percent in the survey still unsure as to the extent of these costs. Forty-one percent expect depository costs to be in the region of 5-25 basis points but increased pressures on liability may cause these to go to even higher levels for fund managers using more exotic strategies.
If the increased costs, such as depository liabilities, prove to be significant, then this may result in fund managers avoiding being in scope of AIFMD altogether, and cause funds to domicile or co-domicile offshore to service their non-EU investor base.
Over three-quarters of survey respondents (77 percent) believe that EU managers will consider offshore structures to avoid the additional costs of AIFMD for non-EU investors.
Should the new inflows into the EU from AIFMD be realized, according to the survey Luxembourg and Ireland will be the biggest winners, with London lagging behind.
Eighty-nine percent of respondents placed Luxembourg in their list of top three domiciles likely to be most successful under AIFMD in attracting new business or funds re-domiciling. Ireland came second and the UK came third—a less positive assessment of London’s prospects than often made.
Hale concluded: “Overall, the institutional investors and global inflows will likely outweigh the potential exodus of funds from EU domiciles, although it may take a few iterations of the directive before it goes global as UCITS III did in the 2000s."
"Finally, although 83 percent of our respondents believe they are now ready for AIFMD, or will be come July, there is still much on-going discussion around reporting and cost. In our opinion, that readiness is going to be tested over the coming months and the industry might find it is not as ready as it thinks it is.”
The survey, conducted by Multifonds following the release of the AIFMD Level II measures, reveals that 59 percent of respondents, who collectively manage and administer assets exceeding $13 trillion and $28 trillion respectively, believe AIFMD will become an international standard for distributing alternative investment funds (AIFs) globally like the established UCITS brand.
Keith Hale, Multifonds’ executive vice president for client and business development, said: “Convergence between traditional and alternative funds will have a fundamental impact on the way that managers and administrators service the fund industry. AIFMD appears to be a significant new catalyst in accelerating this convergence trend, as demonstrated in our survey results where 83 percent of respondents agreed that convergence will continue.”
However, the cost of complying with the new regulation was revealed to be a real concern for fund managers and service providers alike.
Since the publication of the Level II text, the costs of implementing AIFMD have increased according to almost three-quarters (74 percent) of respondents who have either seen a rise in the implementation costs for AIFMD (52 percent) or still don’t know the extent of their costs (22 percent).
Depository costs specifically remain a persistent concern, with 47 percent in the survey still unsure as to the extent of these costs. Forty-one percent expect depository costs to be in the region of 5-25 basis points but increased pressures on liability may cause these to go to even higher levels for fund managers using more exotic strategies.
If the increased costs, such as depository liabilities, prove to be significant, then this may result in fund managers avoiding being in scope of AIFMD altogether, and cause funds to domicile or co-domicile offshore to service their non-EU investor base.
Over three-quarters of survey respondents (77 percent) believe that EU managers will consider offshore structures to avoid the additional costs of AIFMD for non-EU investors.
Should the new inflows into the EU from AIFMD be realized, according to the survey Luxembourg and Ireland will be the biggest winners, with London lagging behind.
Eighty-nine percent of respondents placed Luxembourg in their list of top three domiciles likely to be most successful under AIFMD in attracting new business or funds re-domiciling. Ireland came second and the UK came third—a less positive assessment of London’s prospects than often made.
Hale concluded: “Overall, the institutional investors and global inflows will likely outweigh the potential exodus of funds from EU domiciles, although it may take a few iterations of the directive before it goes global as UCITS III did in the 2000s."
"Finally, although 83 percent of our respondents believe they are now ready for AIFMD, or will be come July, there is still much on-going discussion around reporting and cost. In our opinion, that readiness is going to be tested over the coming months and the industry might find it is not as ready as it thinks it is.”
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