Evidence that some alternative fund managers with funds domiciled outside of the EU are not targeting European investors due to regulatory difficulties has been produced.
Researchers at Cerulli Associates say difficulties caused by the Alternative Investment Fund Managers Directive (AIFMD) lie behind managers deciding to forgo asset-raising opportunities in the EU.
The chief operating officer of one fund told Cerulli that US and Asian managers are opting to ignore Europe as a result of AIFMD, concentrating greater marketing efforts instead on domestic investors elsewhere.
The AIFMD has long been seen as a potential barrier of entry for funds domiciled outside of the EU, regardless of where the manager is based, due to compliance requirements for funds to be onshore or in domiciles – such as the Channel Islands and Switzerland – that have earned a so-called passport from the European Securities and Markets Authority.
“At the crux of the debate is the question of whether financial rewards outweigh compliance costs,” says Barbara Wall, Europe research director at Cerulli. She notes the cost of becoming AIFMD compliant is estimated at between €278,000 and €942,000.
Regulators say they want more analysis of regulatory regimes in the US, Hong Kong and Singapore before ruling on whether funds in these countries can gain a passport.
“The delay is cause for concern. A speedy decision is needed, however we are not hopeful of one,” says Wall, noting significant regulatory discrepancies between the EU and US.
David Walker, director of European institutional research at Cerulli, adds it is a cause for concern if Europe’s growing web of regulation affecting alternative 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,” says Walker.
Managers without passporting rights can use national private placement regimes to access Europe. However, a lack of uniformity across the EU with regard to these regimes creates confusion, Cerulli says in its The Cerulli Edge-Europe Edition.
The firm notes differences between countries about AIFMD reporting rules have resulted in some non-EU managers marketing to fewer jurisdictions, while others are moving onshore or launching Ucits funds.
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