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Supplements » Luxembourg Report 2021

Sponsored feature: SFDR presents challenges and opportunities for AIFMs

Jan_VanhoutteManagers are treading carefully when assessing how to class their funds under the EU’s new ESG disclosure rules, says Vistra’s Jan Vanhoutte.

The European Union’s incoming sustainability disclosure rules are creating challenges for alternative investment fund managers (AIFMs), but they are also raising opportunities to improve relationships between third-party AIFMs and their clients, according to Vistra Fund Management’s managing director and conducting officer, Jan Vanhoutte (pictured). 

The EU Sustainable Finance Directive Regulation (SFDR) will require AIFMs to update their disclosures, issuing documents and websites. Under level one of the SFDR regulation, which comes into force in March, funds have to be classed as sustainable funds, partially sustainable or not sustainable. All of this must be clearly disclosed to investors. 

Being a third-party AIFM platform, Vistra also needs to review its own risk-management processes and remuneration policies and is using this experience to help guide its managers through SFDR.

Carefully categorised
“We typically have impact funds and [other funds] that will definitely be classed as sustainable as they are deeply ESG,” says Vanhoutte. “Some managers are being rather careful to not categorise their funds too high because if you categorise yourself as partially sustainable or sustainable, you can no longer invest in assets that are not ESG-compliant.” 

Vistra is hosting daily calls with its managers about how and where they would assess and place themselves, he says. 

“A lot are seeking to be placed under article 8 as partially-sustainable for the time being, while some opt for non-sustainable under article 6 because they are rather careful as they don’t want to prevent themselves from making an investment or making a mis-statement,” Vanhoutte says. 

“The current challenge we’re facing is having that assessment, because it’s unclear whether, from a contractual standpoint, it will be an issue, and also from an implementation, risk and remuneration policy perspective.”

This is because there is risk that if a manager chooses where to position itself now, it might be difficult to change it later on if it changes its mind. 

There are also challenges when AIFMs host managers from different geographical areas – such as the US, Asia and Europe – because managers tend to have different sustainable targets or interpretations, he adds. 

Vanhoutte is interested to see the level of disclosure and transparency that managers will reach, but this is unlikely to become clear until the end of the year or January 2022, when level two of SFDR is due to come into force. 

Level two will require much more stringent disclosure from managers and is yet to be finalised. 

Vanhoutte notes how much managers rely on Vistra as a third party, which gives the company the opportunity to build an even closer relationship with managers. 

“Managers used to look at us as an investment compliance box with a role to monitor the framework they gave to us,” he says. “It’s very interesting to see how that dynamic has flipped so they now say, ‘we need your support to help us categorise ourselves’.” 

More sophisticated managers have had these policies for a long time and are well aware of the changes, but others are playing catch-up – and this is not necessarily only the small managers, Vanhoutte explains. 

“The venture capitalists to whom we provide services are actually very aware, but some real estate or private equity managers have not really thought about how SFDR will impact them.” 

The SFDR provides a good opportunity for AIFMs to be on the same page as managers, to address investors needs who are increasingly interested in ESG, notes Vanhoutte.

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