AIFMD will reduce choice and increase costs for fund managers and investors, according to BNY Mellon survey

By Hedge Fund Insight staff

New research by BNY Mellon, the global leader in investment management and investment services, points to significant uncertainty about Alternative Investment Fund Managers Directive (AIFMD) requirements despite today’s first deadline for authorisation. BNY Mellon surveyed 70 respondents from Europe, Asia, the US and Latin America from companies with an accumulated total of over USD$5 trillion assets under management.

Key findings from the survey include:

• Half the survey respondents believe that uncertainty remains within their organisation, while a third reveal a fear of not complying on time and of negative financial implications.

• 50 per cent believe that their organisation will be disadvantaged in some way by AIFMD over the medium term.  Only 18 per cent believe there to be a benefit.

• While 58 per cent have a project team in place to deal with the issue, 73 per cent do not expect to apply for authorisation before 2014.

• As the industry comes to terms with the implications of a heightened regulatory environment, respondents believe that initial AIFMD project/one-off costs will range from between US$300,000 to over US$1 million per institution.

• Regulatory reporting is seen to have the greatest time and cost implications, followed by risk and compliance reporting. Respondents remain uncertain about the cost of depository services, which are not included in the estimates above. Additionally, 88 per cent believe that the cost of funds (TER) will increase as a result of AIFMD.

• 67 per cent believe that AIFMD will result in the absolute number of alternative funds decreasing, while 39 per cent believe that their organisation will close some funds, move funds outside of the EU or merge funds together.

• Two thirds of survey respondents believe the cost and complexity of compliance will lead to reduced choice of opportunities for investors.

• While fund managers do not expect to be the winners in this regulatory change, those surveyed believe that the key benefits of AIFMD will be seen mostly by investors and in the industry’s ability to distribute more widely, making funds more accessible to the end user. 54 per cent of respondents expect to see an increase in the amount of capital invested in alternative funds due to AIFMD.

• The findings indicate that over half of respondents do not expect the AIFMD requirements to be adopted by other jurisdictions. 62 per cent believe that investors will keep their money in European-domiciled funds rather than invest in jurisdictions with less onerous requirements.

“Despite today being the deadline to apply for authorisation under AIFMD, much work remains for the industry to achieve full compliance, with our research suggesting that the burden of regulation could even lead to a lower number of funds available to investors,” observes Hani Kablawi, EMEA Head of Asset Servicing at BNY Mellon, in response to today’s findings. “Despite attempts to improve investor access and information, the industry is challenged by the complexity of implementing AIFMD and the need to comply with it in the future. This is a demanding time for the industry as it grapples with the slew of further regulation under implementation or discussion across Europe.”

“There is no doubt AIFMD represents a significant change for the funds industry across Europe and beyond,” added Peter Craft, BNY Mellon’s EMEA Head of Trustee and Depositary Services.  “It transforms our duties and introduces significant new liabilities. We are leveraging the strength of our team across Europe to ensure we are ready to support managers in this pressurized operating environment.”