In particular, larger US managers willing to meet the regulatory and compliance demands of AIFMD, and which can compete with their smaller peers on investment performance, can now surpass those peers on distribution capability with the benefit of an EU passport.
It is fair to say that smaller managers are more reluctant to comply with AIFMD as they do not have the same compliance and regulatory infrastructure as larger managers. In particular, the AIFMD remuneration rules, requiring a firm-wide remuneration policy (focusing on the criteria to award bonuses), represent a cultural challenge to many firms, especially small- and medium-sized owner-managed firms.
While the compliance aspects have attracted a great deal of negative comment, it is clear that some managers are starting to regard this seismic shift as holding potential opportunities.
Michelle Moran is a partner in the investment management group at Ropes & Gray LLP
The Financial Conduct Authority definition of the AIFMD
The scope of the AIFMD is broad and, with a few exceptions, covers the management, administration and marketing of alternative investment funds (AIFs). Its focus is on regulating the Alternative Investment Fund Manager (AIFM) rather than the AIF.
An AIF is a ‘collective investment undertaking’ that is not subject to the Ucits regime, and includes hedge funds, private equity funds, retail investment funds, investment companies and real estate funds, among others.
The AIFMD establishes an EU-wide harmonised framework for monitoring and supervising risks posed by AIFMs and the AIFs they manage, and for strengthening the internal market in alternative funds.
The directive also includes new requirements for firms acting as a depositary for an AIF.