The European Securities and Markets Authority’s (Esma) recent decision to extend the Alternative Investment Fund Managers Directive (AIFMD) to some countries beyond the EU has been met with cautious optimism as many think it does not go far enough.
The AIFMD passport is crucial for hedge fund managers to market their funds throughout Europe. While its extension to countries such as Switzerland (pending certain legislation), Guernsey and Jersey has been widely praised, there have been calls for Esma to do more.
The Alternative Investment Management Association (Aima) has said it thinks that the passport should be granted to all the main asset management and fund jurisdictions.
Esma has stated that it will assess other non-EU countries including the Cayman Islands, Canada and Australia and even refine its assessment of the US, Hong Kong and Singapore, which have so far not received a recommendation that the passport will be extended to them.
Andrew Shrimpton, managing director and global head of compliance consulting at Duff & Phelps’ Kinetic Partners division, was surprised that the Cayman Islands wasn’t assessed at the same time as those countries receiving the extension, as the jurisdiction is the largest non-European Economic Area domicile for hedge funds.
An extension of AIFMD to the US would be useful as recent research showed that only a small proportion of US funds are currently AIMFD compliant. However, some believe that there may be political issues with granting the passport to US funds.
Cathy Pitt, a funds partner at law firm CMS, says one of the principal concerns raised in relation to the US was that permitting the extension of the passport to the US would result in the US receiving preferential treatment in the EU, compared to how EU funds and managers are treated in the US.
However, ESMA specifically advises a delay of the decision on the extension of the passport to the US until ‘such time as conditions which might lead to a distortion of competition are addressed’.
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