Question 3

Are there any known changes planned for AIFMD II and UCITS VI?

There was some degree of disagreement over the issue of AIFMD II during the European roadshow.

In Zurich, Markus Fuchs, Managing Director of the Swiss Fund and Asset Management Association (SFAMA) was quite adamant in saying: “Harmonisation, in terms of the regulators trying to get all asset management companies to move in the same direction, is very dangerous if that direction ends up being wrong. The system will collapse. I really hope we do not see a private equity version of the AIFMD, a real estate version of the AIFMD and so on. I think it’s important for it to remain a single regulatory framework for all alternative funds.”

By contrast, in London and Luxembourg there was a feeling that some improvements could be made with respect to how different AIFs – PERE funds, infrastructure funds, investment trusts and so on – are regulated with SGSS’s David Painter remarking:

“One of the issues with AIFMD is that it covers a broad range of fund types, which have very different characteristics. Whilst there is very little appetite for even more regulatory change in the near future, I think a more effective approach to overseeing specific fund types and operating models might be achieved by adopting a modular structure focused on each category of AIF, rather than applying blanket regulation to managers.”

In some ways, AIFMD is an awkward regulatory framework in the sense that it applies to the hedge fund business but not to the private equity or real estate business. For example, 70% of the data that needs to be reported in Annex IV does not apply to either of these asset classes. In Wittamer’s view, it is an ill-conceived piece of regulation. “As it relates to the brand, I think we will have to wait another decade before the AIF becomes something akin to UCITS. The amount raised by private equity in 2015 represented 2% of Europe’s EUR19tn GDP. Do these funds really pose a systemic risk? I think you know the answer,” said Wittamer.

Clement Labouret, Operations Manager for FIL Gestion (part of Fidelity International), who attended the Paris lunch event hosted by SGSS, shared a similar view by stating that “we would like to see a more suitable directive based on the underlying asset strategy”.

He feels that the reporting process for PERE funds should be different; after all, these are investments that are held for multiple years. Reporting on them on a monthly basis seems inappropriate at best.

In London, Bowie confirmed that AIFMs are keen to see changes on the level of reporting under AIFMD. The sheer number of reporting-related questions, some 70-odd, in the ESMA Q&A, show that the reporting rules - covering over 300 data fields - are not easy to interpret, she said, adding: “AIFMD needs time to bed down, rather than thinking about bringing in a second version of the Directive. It’s too early for that. Annex IV reporting is one area, however, that we would like to see addressed at this stage.”

At this stage there is no indication that AIFMD II is on the cards. It is nothing more than industry gossip. ESMA needs time to get a clearer understanding of how third country passporting rules will play out under AIFMD before it even remotely considers updating the Directive.

“We cannot keep modifying the regulations,” said Vincent Ingham, Regulatory Policy Adviser at EFAMA. “The main issues we are looking at are: asset segregation, class actions and obstacles to cross-border distribution, with respect to both UCITS and AIFs. As for UCITS VI, I can confirm that there is no news on this.”

On the third country management company passport issue, ESMA should know by 2017 which aspects of this are working well, and which need to be corrected. This will also depend on which countries, aside from Jersey, Guernsey and Switzerland, receive ESMA’s approval in 2016. “The third country passporting issue is yet to be resolved. ESMA has decided to take a country-by-country approach. Regulators need more experience understanding how AIFMD works from a manager passport perspective,” said Dee Ruddy, Director, Advisory, KPMG (Luxembourg).

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