AIMA warns on ESMA consultation on AIFMD

Date: Tuesday, September 27, 2011
Author: Martin Leonard, COO Connect

European Union (EU) investors could be prevented from allocating capital into non-EU hedge funds if the European Securities and Markets Authority (ESMA) gets its way, the Alternative Investment Management Association (AIMA) has warned.

ESMA, which is responsible for giving advice on implementation of the Alternative Investment Fund Managers Directive (AIFMD), has reintroduced the concept of ‘equivalence.’ AIMA said the latest proposals went further than what was required - or even permitted - by the ‘level 1’ legislation agreed last year by the European Council, the European Commission and the European Parliament. Such recommendations could prevent investors from allocating to managers domiciled in jurisdictions such as US, Hong Kong, Singapore, Switzerland, Canada and Australia.

Equivalence would also make it difficult for EU managers to delegate portfolio management to third party asset managers, according to AIMA.

One industry source said the ESMA taskforce had “gone off the rails and returned to the spirit of the original AIFMD proposals of 2009.” The source warned that the proposals went beyond the legal remit of level 1. “It is important to note that this is just advice and once the grown-ups take a look at these suggestions, common sense will prevail and we will move back in the right direction,” said the source.

AIMA’s chief executive officer Andrew Baker also warned of dire consequences. “The concept of equivalence was thoroughly considered, discussed and importantly, dismissed during the legislative process in a number of areas, as it was apparent that it would be unworkable,” said Baker.

“The practical implication of the proposals is that some investments into non-EU jurisdictions would become very difficult, if not impossible. Furthermore, it is difficult to imagine how the equivalence of dozens of jurisdictions could be assessed within the implementation deadline. In some parts of the proposal it's not even clear who would be responsible for such an assessment,” he added.

AIFMD will take effect in July 2013.