AIFMD could create fortress Europe

European private equity investors are anxious as to whether the Alternative Investment Fund Managers Directive (AIFMD) will put off non-EU fund managers, according to a panel at the British Private Equity and Venture Capital Association Summit on Thursday.

Speaking at the Summit, John Morgan, global head of legal at private equity fund investor Pantheon, said investors are worried whether or not the top fund managers located outside of the EU will feel they need to go through the rigmarole of marketing in Europe.

He said that due to the lack of clarity surrounding the directive and national private placement regimes some jurisdictions are currently too difficult to market in for non-EU firms.

This view was backed up by Ludo Bammens, head of EMEA corporate affairs at KKR, who said the most costly aspect of marketing in Europe at the moment is working out exactly what is required in each individual member state.

Bammens added that KKR’s European investors make up around 20 percent of its funds, so 80 percent of investors are uninterested in the directive, yet changes firms have to make under the AIFMD impact all investors.

Also mindful that European investors may be shunned was Michael Collins, public affairs director at the European Private Equity and Venture Capital Association. He said that currently circa 40 percent of European private equity fundraising is done outside of the EU, and as it stands the lack of certainty is encouraging this figure to grow.

The lack of clarity for fund managers stems from national regulators either not having implemented the AIFMD into national law, remaining opaque about what firms are required to do under private placement regimes, or in some cases adding requirements.

A study conducted by the Alternative Investment Management Association and Ernst & Young recently revealed France will impose significant additional requirements on non-domestic fund managers marketing under France’s private placement regime.

Germany too has added a requirement for non-EU fund managers of non-EU funds to appoint an entity to carry out the so called “depositary-lite” duties of cash monitoring, safekeeping of assets and oversight and verification.

“Investors in those jurisdictions that have gold-plated the minimum requirements set out in the Directive for the national private placement regimes will have a more restricted selection of funds to choose from compared to peers in other countries,” Jiri Krol, AIMA’s deputy chief executive and head of Government & Regulatory Affairs, said in a statement.

The panel did temper their opinions by adding that it is still too early to tell what the real impact of the directive will be as most nations are offering a transitional period until July 22 2014, effectively delaying the launch of the AIFMD by a year.

Simon Witney, funds partner at SJ Berwin, even went as far as to say the industry could benefit from the AIFMD in the long-run. He said that after the AIFMD’s teething problems are sorted the pan-European marketing passport, which is expected to be available for non-EU fund managers in 2015, will make marketing in Europe a lot more efficient.