In return for more regulation of AIFM, their service providers and funds, the proposed Directive provides for the introduction of passports enabling AIFMs to offer their management services and market their Alternative Investment Funds (AIFs) throughout the EU. The impact of the Directive is about far more than compliance â it will drive structural change in the industry. Asset management perspective
Groups, including promoters and managers should consider a strategic rethink of their fund ranges and a review of their operating models. Fund range review
This will focus on:
- Investor base: meeting the needs of European and international, professional and retail investors
- Marketing: benefiting (where possible) from the European passport for AIFs, private placement possibilities, etc.
- Products styles (regulated/unregulated vehicles, open/closed-ended, single fund/fund of fund, etc.)
- Investment strategies (target sectors and geographic areas, use of leverage, etc)
Groups will need to determine the optimal platform to service to their fund range, and benefiting from the passport for AIFMs and any relevant exemptions available. The options open relate to:
- Configuration: the optimal combination of own and third-party or joint venture service providers.
- Delegation: the functions which will remain in-house, and those which may be outsourced by AIFM, such as administration, valuation and marketing. The custodian must be independent of the AIFM.
- Domicile: the choice of domicile or location of the AIFMs and service providers. The AIFM passport enables an AIFM in one EU Member State to manage AIFs in another directly or via the establishment of a branch. AIFMs may also delegate functions to service providers cross-border.
Service providers, such as depositaries and administrators, will need to carry out their own strategic review of their service offering and operating models. The key challenge for service providers will be meeting the scope, quality and quantity of service requirements at a competitive price. Service providers will therefore need to attain critical size and implement robust and efficient processes and procedures. If the provisions on the depositary are implemented, there will be a significant restructuring in the depositary space in particular to achieve the scale needed, and to cover emerging and exotic markets. Investor perspective
Investors will need to carry out their own strategic reviews in view of the new requirements and opportunities. As some markets and products will no longer be accessible to them, institutional and professionals investors will need to review the investment options open to them post implementation. â¢ Michael Hornsby is Real Estate Leader at Ernst & Young, Luxembourg Â©2010 Funds Europe