We recognise that if the directive is seen as just a hedge fund industry issue then it will be difficult to make policymakers listen to our concerns. That’s why we have been stressing that there are provisions within the directive in terms of impact on pensions, commercial real estate and inward capital flows that will affect every single EU member state’s economy.
I am glad to say now that there are growing signs that opposition to the directive in its current form across Europe is beginning to reach critical mass. The German funds association BVI has expressed alarm, saying that German spezialfonds (or special funds) and open-ended real estate funds will be heavily affected by the directive: “The sweeping approach to fund regulation adopted by the Commission in the draft AIFM directive brings about significant drawbacks for German non-Ucits funds.”
Meanwhile in the UK the commercial real estate industry has also spoken out about the dangers of the directive. The Property Industry Alliance – which features the major industry bodies – said it had “identified a number of serious concerns”.
We believe that commercial real estate markets in EU member states could be significantly impacted by the directive, which of course covers real estate funds as well as hedge funds and private equity. Smaller member states in “New Europe” could be particularly badly affected. Estimates from commercial real estate consultants in Lithuania, for example, concluded that 95% of major commercial real estate transactions (those of above €5m) came from international investment and that 90% of those investments were from international real estate funds.
The pension fund industry has already voiced its concerns on the directive. Lindsay Tomlinson, incoming chairman of the UK’s National Association of Pension Funds, said: “There have been a few EU directives that looked worrying, but one could understand what they were seeking to achieve and it was possible to focus on particular clauses and seek to make them work better for investors. This does not seem to be the case with the Alternative Investment Fund Managers Directive, which, if implemented as drafted, would have many consequences that in aggregate do not seem to benefit investors. The problem in amending this draft is to decide where to start.”
And Jerry Moriarty, director of policy at the Irish Association of Pension Funds, added: “If the directive was to be passed in its current form, we would be worried about the implications it would have on investment. Irish pension schemes have been steadily increasing their holdings in alternative and international asset classes and, if implemented, the directive would adversely impact their diversification strategies.”
Banking groups have come out against the directive too. The Association of Global Custodians – a group of eight global custodian banks – has expressed doubt about the provisions on depositaries in the directive suggesting there could be “negative consequences for both investors and asset managers”.
EU commissioner Charlie McCreevy has also made some helpful remarks on the directive, saying: “Most commentators agree that alternative investments were not the primary cause of the crisis,” and admitting that “there has been strong political pressure” for more regulation. He argued that “Europe is going to need all the investment it can get to move out of the crisis. We must not end up making Europe an unattractive place for investors”.
We will continue to stress the wider consequences of the directive in terms of the competitiveness of EU financial services and the desirability of Europe as a destination for international investment. We are approaching individual member states to explain our position and laying the groundwork for a potential future compromise by underlining that we are happy to accept elements of the directive that are part of the G20 vision, such as manager authorisation, and the reporting of systemically relevant data.
The feedback that we have received is that if we can demonstrate that we do not oppose fair regulation but rather have legitimate concerns about the quality of the drafting of the directive we will have a sympathetic hearing from European policy makers.
• Andrew Baker is the chief executive of Aima
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