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AIFMD not enough to protect investor welfare

Date: Friday, December 14, 2012
Author: Ahila Karan, ProHedge.co.uk

Increased complexity, as the number of service providers and third parties rapidly increase in the alternative investments industry is an unproductive cost. Regulation, targeted to protect investors, is necessary explains Mick McAteer, Founder and Director of Financial Inclusion Centre, at Wednesday’s infoline AIFMD event.

There is an “oversupply of financial products and institutions today that has not added value to the industry”, believes McAteer, “I challenge [managers] to demonstrate that the complex industry structure has made productive use of investor capital”.

By cutting Total Expense Ratios (operational costs relative to asset value) for European asset managements, there would be a 2.1% saving in GDP, McAteer explains; these unnecessary layers in the industry “merely extract value out of the supply chain”.

Quoting from the European Commission’s league table on impacts to consumers, McAteer highlights, the pension and investment fund industry consistently scores the worst. Part of the market failure has been a result of weak market forces.

“I don’t think the AIFM will make any real difference to efficiency and competition. We need a fundamental reform”. Regulation needs to provide “competition to promote beneficial market forces” in the interests of the investor.

Moving forward, “genuine innovation must meet the needs of investors: add value to increase social utility and manage risk for investors.”