Alternative Investment Fund Managers Directive

The EU commission published its first draft of the Alternative Investment Fund Managers Directive on 30 April 2009. The purpose of the Directive is to create a uniform regulatory framework for all EU managed funds not currently regulated under UCITS.

The draft Directive has provoked much debate in both the industry and at a political level, as the solution sought by the draft Directive is very broad and does not distinguish between different types of funds investment. The Directive simply proposes that ‘..the management and administration of any non-UCITS in the European Union must be authorised and surpervised in accordance with the requirements of the Directive’.

The Challenge

The Directive applies to all managers of AIFs established within the EU, irrespective of the domicile of the fund being managed. The definition of an AIF is wide, and deliberately not sector specific. Limited exemptions are likely to be satisfied only by small niche players. Any entity not authorised under the directive may neither provide management services, nor market any funds’s units or shares, anywhere within the EU.

The Directive imposes obligations which are new to many fund managers. In many cases such obligations are not currently a normal contractual obligation to the fund investors, and will result in a material increase to the cost base. These obligations include the appointment of an independent depositary and regulatory capital.

PricewaterhouseCoopers solutions

The debate over the directive is in full flow with intense political discussion and negotiation. PwC is able to provide a measured analysis of the proposals and has examined the likely major implications for the AIF industry, including Hedge Funds, Private Equity and Real Estate investment funds.

If political approval of the Directive is reached before the end of 2009, then it could be in effect in 2011. If implemented in substantially its current form, then all fund managers will need be forced to review how the new order will have a radical impact on how they operate, and measure this effect on their cost base.