Fund managers were advised to prepare for the AIFMD with a view to being compliant by 2013 despite ongoing uncertainty as to the outcome. This was during a regulatory panel discussion at a CEE private equity event held recently in London.
In particular, they were encouraged to look at the structure of their funds and the demographic of their investor base to assess whether or not they need to be EU based. According to one expert, fund managers with no compelling need to be in the EU should consider staying or moving offshore to mitigate increased costs and regulatory pressure associated with the directive.
There’s a lot of interest in what the outcome of the AIFMD will be, according to one Prague based fund manager. His view was that the private equity industry is already in fairly good shape with regards to preparation for many aspects of the directive since investor reporting, clear documentation around the strategy of the fund and established valuation standards are already in place. This was deemed particularly relevant to CEE fund managers, as many of them have IFIs investing in their funds and as a result they are familiar with more stringent reporting requirements.
New challenges for the industry are around requirements associated with depositaries, capital adequacy and disclosure in relation to remuneration. The greatest uncertainty though is as to what exactly the final regime will be, particularly since implementation will be subject to interpretation by member states.
A Russian based fund manager also participating on the regulatory panel agreed with regards to uncertainty. At this stage he said, they were looking at whether due to the size of their funds and low levels of leverage they would be exempt from the directive. With one structure in Guernsey, and a planned structure in Luxembourg to enable them to market to EU based investors, they are keeping their options open.
This trend toward co-domiciliation was echoed by others on the panel. Panel chair, Justin Partington, Commercial Director for fund services firm, Ipes said “It’s a trend we are seeing increasingly frequently. Many of our clients are looking to establish structures that span either Guernsey or Jersey and Luxembourg to enable them to meet investor needs, whatever the final version of the directive looks like, and ensure those investors outside the EU are not subject to the higher costs and unnecessary burden that may be associated with compliance”.
The overriding message from the panel was that despite continued uncertainty as to what the final directive will look like the industry is taking steps to establish a level of certainty for their activities. As one panellist highlighted, with changes stemming from political wrangling likely for another three years, fund managers must create an element of certainty in the unknown as they’re now looking to launch and raise funds with an average lifespan of ten years.
The regulatory panel included representatives from Enercap, Da Vinci Capital, Mourant Ozannes and Ipes.