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Laven Partners: update on EU's AIFM Directive

Thursday, February 18, 2010
Opalesque industry Update - Since taking over the EU Presidency in January, the Spanish have put forward a new version of the Directive.

This compromise proposal includes substantial improvements in relation to private placement rules, leverage and fund managers’ delegation capabilities. However, in contrast to the Swedish draft, the provisions relating to the marketing of third-country funds have taken a step back. In the previous version, a non-EU fund manager was permitted to market its funds under a national private placing framework with the approval of the relevant EU member state. The Spanish version however, is proposing an additional level of regulation whereby a non-EU fund could be marketed by a non-EU manager to investors in the EU only if the non-EU manager reports to the relevant local regulator.

In addition, the Spanish have made a further amendment to the Directive this week which, according to Financial News, "would require 'appropriate cooperation agreements' between individual state regulators within the EU and regulators of other countries before hedge and private equity funds from those countries could market their wares in a European country".

Industry professionals and politicians have been rallying over the Directive since last summer and unsurprisingly, the number of proposed amendments put forward by different bodies is unprecedented. According to Javier Echarri, secretary general of European Venture Capital Association, well over a thousand amendments have been submitted by MEPs. On 27 January, the JURI Committee (the EU Committee on Legal Affairs), which is advising the European Parliamentary Committee on Economic and Monetary Affairs, held a meeting to discuss the potential impact of the Directive. The JURI Committee presented 29 amendments; most notably a proposal which recommends changing the name of the Directive itself to include funds.

Scottish investment managers, represented by the Scottish Financial Enterprise (SFE), also joined in expressing their concerns over the introduction of new layer of regulation. “It is not better regulation - just more, overlapping regulation that would bring restrictions without benefits," said Owen Kelly, Chief Executive of SFE.

The UK Business Secretary, Lord Mandelson, has also been among the critics of the agenda, branding it “badly flawed”. He said: “Parts of the alternative investment fund managers’ directive read more like a long standing grudge against the hedge fund industry than a serious attempt to address systemic risk.” The same argument was proffered by the Bank of England’s Financial Markets Law Committee, which warned of systematic failure and widespread disruption were the Directive implemented in the current format.

Last month, the Internal Market and Services Commissioner, Michel Barnier, wrote to Sayed Kamall, a London MEP, expressing his desire to come to London to consult the hedge fund industry. We have been in touch with Mr. Kamall who has informed us that he is currently in discussions with M. Barnier's office with regards to the date and time of the meeting with hedge fund and private equity managers. We hope this meeting will take place as it is obvious that the Directive has been drafted by politicians remote from the industry and unfamiliar with its practices. Mr. Barnier appears more interested in engaging than his predecessor Charlie McCreevy, despite his agenda having already been influenced by the past meetings of the G20, Basel Committee on Banking Supervision and internal EC discussions.

Meanwhile, European hedge fund managers are preparing for changes by structuring their strategies as UCITs in response to investor demand for more regulated vehicles. Likewise, professional investors welcome the new proposals, which will allow them to invest in UCITs structured investment strategies that would have previously been available through alternative funds only.

The alternative funds industry is eager to find out what the future holds for them especially in light of a changed political environment in Brussels since the beginning of the crisis. As European Voice, an EU affairs newspaper described: “The need for reform is just as great, but the sense of urgency has diminished”.

This article was part of the Laven Partners Monitoring Update on the European Commission Directive on Alternative Investment Fund Managers.

Laven Partners is the consultancy arm of the Laven group - an investment management group specialised in providing regulatory, operational and legal solutions to the fund management industry for both fund managers and institutional


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