Alts. Managers Unhappy Over Hedge Fund Harmonization Rules

Jul 22 2013 | 9:59am ET

Fund managers are not fans of the Alternative Investment Fund Managers Directive, which comes into force today. 

According to a survey just released by BNY Mellon, 50% of funds believe that their organization will be disadvantaged in some way by the new regulations, which seek to harmonize regulation of hedge funds and other alternative investment vehicles based within the European Union or selling products to EU investors.

Fund managers believe the new regulations will be costly for both their firms and for investors. Respondents estimate that initial AIFMD one-off costs will range between $300,000 and over $1 million per institution. Additionally, 88% believe  the cost of running funds will increase as a result of AIFMD, with these costs being passed along to investors.

The new rules are also causing confusion. Half the survey respondents believe that uncertainty remains within their organization, while a third reveal a fear of not complying on time and of negative financial implications.

Meanwhile, 67% of respondents predict that AIFMD will result in the number of alternative funds decreasing, while 39% believe their organization will close some funds, move funds outside of the EU or merge funds together.

While fund managers may not be fans of the new directive, those surveyed believe the key benefits of AIFMD will be seen mostly by investors and in the industry's ability to distribute more widely, making funds more accessible to the end user. Just over half of respondents expect to see an increase in the amount of capital invested in alternative funds due to AIFMD.

"Despite today being the deadline to apply for authorization under AIFMD, much work remains for the industry to achieve full compliance, with our research suggesting that the burden of regulation could even lead to a lower number of funds available to investors," observes Hani Kablawi, EMEA head of asset servicing at BNY Mellon. "Despite attempts to improve investor access and information, the industry is challenged by the complexity of implementing AIFMD and the need to comply with it in the future.”

BNY Mellon surveyed 70 respondents from Europe, Asia, the US and Latin America from companies with an accumulated total of over $5 trillion assets under management.

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