An impact assessment on the proposed Alternative Investment Fund Managers Directive has been published by the FSA. The proposed Directive is intended to regulate the activities of alternative investment funds, including private equity, hedge, real estate and infrastructure funds, and their managers (and would also affect the investment banks and brokers who service them). The report by consultants, commissioned by the FSA, is based on evidence from the alternative investment fund industry in Europe.
Investor choice
The report found that the proposed Directive will significantly reduce investor choice. It is estimated that if overseas funds marketing to investors in Europe do not re-domicile to the region, the Directive will effectively close off European investment in about 40% of all hedge funds, 35% of all private
equity funds and 19% of all venture capital funds. Further, while a number of different funds will be affected by the Directive, there are fears that the investment trust structure in the UK could not be maintained within the Directive.
Compliance costs
The report also suggests that the Directive would result in substantial compliance costs for the alternative investment fund industry. For EU-based fund managers, one-off compliance costs are estimated at up to €3.2bn, with ongoing compliance costs of about €311m. These costs largely arise from the need for independent valuators and depositaries and, to a lesser extent, from the new capital requirements, delegation issues and disclosure requirements.
The report is available at http://www.crai.co.uk/uploadedFiles/Publications/Impact_of_AIFM_Directive.pdf.
For background to the proposed Directive see the 18 May 2009 edition of UK Corporate Update.
