On 10 January 2019, the European Commission published a Report on the operation of the alternative investment fund managers Directive (AIFMD). This report is a first step in the AIFMD review process and will ultimately lead to the revision of the rules. While emphasizing that AIFMD has globally been a key point in the development of a single market for alternative investment funds (AIFs), the report also shows that several points need to be improved.
Background – Directive 2011/61 of 8 June 2011 on Alternative Investment Fund Managers
In 2011, the AIFMD was adopted to create a harmonised framework for managers of alternative investment funds (AIFs) in Europe and to regulate the main sources of risk associated with alternative investment management. More specifically, the aim of the Directive was to enhance transparency on AIF managers (AIFMs) subject to the AIFMD towards their supervisory authorities, investors and other key stakeholders in order to increase investor confidence. Indeed, AIFMs are responsible for the management of a significant amount of invested assets in the European Union and account for significant amounts of trading in markets for financial instruments. AIFs include, among others, equity and bond funds, private equity funds, real estate funds, hedge funds and infrastructure funds.
The Directive applies to AIFMs handling, through one or several AIFs, more than €100 million for leveraged AIFs or more than €500 million for unleveraged AIFs in which redemption rights are blocked for a period of 5 years following the initial investment.
Report on the operation of AIFMD
This report provides evidence for the European Commission’s review of AIFMD in accordance with Article 69 of the AIFMD. This study focuses on 15 selected Member States. It consists of two main sections: the general survey and the evidence-based study. The general survey among AIFMs, national competent authorities (NCAs) and other stakeholders asked questions about specific aspects of the AIFMD and market developments. The evidence-based study was based on desk research, the general survey results, interviews, and quantitative data collection and analysis.
Last week’s report concludes that the AIFMD has significantly contributed to creating an internal market for AIFs by establishing a harmonised and stringent regulatory and supervisory framework for AIFMs. Most of the AIFMD provisions are assessed as having achieved the intended objectives efficiently and effectively. Their continuous relevance is confirmed by the existing market needs.
The report also identifies several provisions that need to be improved, which relate – particularly, but not exclusively – to the principles of effectiveness and efficiency, such as:
- some rules are interpreted divergently across Member States by their NCAS, for example the rules concerning depositories and the EU market passport regime;
- some rules, for example reporting requirements, may overlap with other European disclosure rules;
- no hard evidence was available as to whether and to what extent the AIFMD provisions have enabled more informed investment decisions by AIF investors;
- the harmonisation of the calculation methodologies for leverage across AIFMD, UCITS and other relevant legislation;
- the coherence of the AIFMD remuneration rules with other legislation or guidelines;
- the requirements related to investments in non-listed companies and enterprises and the extent of notifications to NCAs are viewed as not useful and overly burdensome.
These points will require further analysis.
Based on the insights gained from the report as well as other sources of data and further analysis, the European Commission will continue its ongoing work on the AIFMD review with particular focus on the issues identified as requiring further reflection. In 2020, the European Commission will prepare a report on the functioning of AIFMD to be submitted to the European Parliament and the Council.