Schemes to pick up bill for AIFMD

The AIFMD – which has received the final approval by the European Parliament – sets a number of requirements alternative fund managers will need to meet in order to market their products to investors based in the European Union .

They range from fund managers pay restrictions to additional reporting requirements and to the creation of an EU passport which will grant approved funds the ability to be commercially present in the EU.

While it will be next year before a number of details will be finalised by the European Commission together with national regulators, the final text of the directive left few interested parties entirely happy.

Most industry figures contacted by schemeXpert.com pointed out AIFM will have to pay hefty fees to depositaries, which they will be required to appoint under the final text of the directive.

“The really big cost is going to be the one related to the depositary requirement. One key issue is that depositaries will have strict liability. This means they will put in place additional checks and also get insured. As a result they are likely to charge very high fees,” said Andrew Wylie, partner at law firm Nabarro.

Henry Raschen, head of regulatory and industry affairs for Europe at HSBC, highlighted similar concerns at the 2010 Annual NAPF conference last October.

At the time, he warned trustees to consider carefully the insurance obligations the directive could have imposed on custodians.

Other requirements, such as additional reporting to regulatory authorities and to investors, will on the one hand make investments more transparent, but on the other increase costs for investment funds and ultimately for schemes.

Pension schemes are likely to be charged higher fees also due to the extra administrative burden involved with these requirements.

Industry figures also showed cautious concerns on how the introduction of the so-called passport – pan-EU marketing rights granted to alternative investment fund managers which meet the directive’s requirements – could severely reduce the investment choice pension funds currently enjoy.

The AIFMD is likely to introduce the passport requirement for non-EU funds from 2018 onwards. During the transition period, national private placement regimes will apply, provided that third countries in which the funds are registered meet various EU regulatory tests.

Jarkko Syyrila, deputy director general of the European Fund and Asset Management Association, told schemeXpert.com pension schemes’ investment universe could be drastically reduced both during the transition period and after 2018.

“Pension funds might not be able to reach best-of-breed products and therefore suffer in terms of performance,” he added.

• For details on the AIFM directive's provisions, read the AIFM directive explained .