29 May My Alternative Investment Funds are not going to be compliant by the 22nd of July, what should I do?
It is rare for regulatory compliance to be exciting, but for service providers who are in a position to help Funds meet the new compliance requirements under the AIFMD, this is their moment in the spotlight. The 22nd of July deadline for Funds, within scope to comply with the AIFMD is motivating Funds to get their house in order, but do the numbers add up and who will ultimately be the winners or losers?
There are 1551 Specialised Investment Funds (SIF’s) domiciled in Luxembourg as of March 2014, the vast majority of these hold alternative assets and are in the 100 M to 2 BN AuM range and many of these are likely to fall within the scope of the AIFMD. Since funds that wanted to create their own Manco should have submitted that request for authorisation to the CSSF by the 1st of April 2014, those that did not are reduced to choosing a third party provider or being late with the consequent regulatory risk.
I spoke to an asset manager this week who told me that they knew they would not have a solution in place but were continuing on the basis that so many other funds also would not have a solution that no regulator would enforce any sort of penalty. We assume the investors remain unaware of the risks of this head-in-the-sand approach.
The number of AIFMs is increasing, as of the 29th of May there are 48. Within this 48, there are only 5 “known” third party providers although other AIFMs could in theory provide services if they so chose. It has already been announced that almost all of the Chapter 16 Manco’s have applied for the AIFM licence, meaning that some additional third party service providers will also appear. However, if we assume that a significant proportion of all SIFs require a third party Manco solution, where will these Funds go? Some managers with existing UCITS Funds are likely to remain with their current provider, however what factors should you consider when choosing your third party Manco?
People : You will be working extensively with this management team on an ongoing basis, does their team fit with yours?
Services : Risk Management or Portfolio management, AIFMD reporting and do you require an end to end solution for new projects?
Distribution : What is your distribution strategy and does it include jurisdictions that have gold plated the AIFMD requirements such as France? Switzerland is another important market and their own regulator has imposed certain criteria on Luxembourg Funds, does your third party provider have a track record of enabling distribution in CH?
Risk Management tools : What level of risk management and what tools does your Manco need to deliver the right report for the BoD of the Fund? All Mancos are using a risk engine, normally provided by an external IT company, who is this external firm and are you satisfied with their technology?
Pricing : Initially Mancos have been offering services priced at around 8 basis points, thus 500k per annum for a 2BN fund.
The story continues…….