AIFMD and the opportunities for fund centres

Whilst AIFMD (the Alternative Investment Fund Managers Directive) received an initially unwelcoming reception when it was first mooted, as the story has evolved it became clear that there were also several opportunities within it, not least for certain jurisdictions in their transposition of it.

“Looking at AIFMD, it appears to push the alternative fund industry towards the same model that has been functional for UCITS funds for the past 25 years,” says Marc Saluzzi, the chairman of ALFI, the Association of the Luxembourg Fund Industry. Luxembourg has been something of an AIFMD success story. “It is more regulation in exchange for a passport, a set-up that we are used to. We are used to leveraged products and leveraged passports. Since both universes are converging, there is an opportunity for Luxembourg because we can, relatively easily, transfer the success that we have had under UCITS over to alternatives now that we have a regulated framework for the industry.

“Even if we did not ask for AIFMD and we were a little upset when we saw the first draft, now we can see the way forward in the model when it comes to regulated funds. This is the opportunity for us.”

Indeed, the success Luxembourg has experienced with UCITS has transferred, by and large, to the alternatives space, resulting from clear direction and financial policy from the Luxembourg government to support the fund industry - an industry that has helped to put Luxembourg on the map internationally. “Luxembourg UCITS funds make up over half of such funds globally,” said Pierre Gramegna, minister of finance in Luxembourg at the recent ALFI Global Distribution Conference. “We will continue to support the fund industry in Luxembourg.” ("Luxembourg fund industry to receive continued government backing)

The approach Luxembourg has taken to AIFMD, on the back of the success that it has experienced with UCITS, is one of the factors that Luxembourg has received so many applications to establish AIFs in the country. “There are a number of reasons (why Luxembourg has been an alternatives success story),” says Marc. “We had nearly 200 UCITS fund management companies domiciled here and many have chosen to double their licence, to get an AIFMD licence. This is very positive for us as it demonstrates that people who have been here for a while are still comfortable and confident here. As well as this, a number of Swiss asset managers have chosen to base their AIFMD business in Luxembourg. All of the large Swiss players now have an AIFM in Luxembourg.”

The alternatives space is still rapidly evolving and there have even been tentative expressions as to an AIFMD II and concrete conversations around UCITS VI. “What we need to do now is focus upon non-EU fund managers,” says Marc of the immediate future. “There are still a number of areas of concern for them, especially the passport for non-EU fund managers to market into Europe. This should be resolved in 2015. There are uncertainties that will mean that it takes us more time to get non-EU fund managers to commit to AIFMD. If they have a large book of European business, then the picture alters in that they have to come to Europe and set up shop here – I cannot see how they can operate the book without setting up here.”

Another factor in the ongoing success of fund centres such as Luxembourg will be establishment as AIFMD as a brand in the same that UCITS has. “We hope that this will be the case and we will do whatever we can to make it happen,” says Marc. “Our promotional focus used to be entirely based around UCITS and now it is a mixture of UCITS and AIMFD. Hopefully a few years from now, because it will clearly take some time, we will have the ability to grow AIFMD into a successful brand too and we do not see why this will not happen. The only thing that I can envisage blocking the success of AIFMD is if we are unable to manage the cost of it. If we can provide a fund centre at a reasonable and reliable cost because of all the regulatory concerns, then it will be a tough sell”.

Whilst Directives and regulations such as AIFMD have caused headaches for some, they have created opportunities for others and Luxembourg is a clear example of this. Through a concerted effort at regulatory and government level, the country has proved to be an attractive base for alternative fund managers in Europe, alongside other prominent fund centres such as London and Dublin.

Tags: AIFMDUCITSUCITS VUCITS VIDirectiveRegulationLuxembourgALFI