The Alternative Investment Fund Managers Directive (AIFMD) will have wide-reaching and long-term implications for AIFMs required to achieve compliance by 22 July, 2013.
Today, the European Commission adopted the Level 2 implementing measures for the Directive, which will now be subject to a three-month scrutiny period (extendable to six months) by the European Parliament and the Council and will enter into force, provided that neither co-legislator objects, at the end of this period.
Nonetheless, a KPMG International survey of more than 70 AIFMs reveals nearly half have not taken any concrete steps to analyze the impacts the AIFMD will have on their businesses or to make changes to their operations despite the looming implementation deadline. According to the survey, entitled Last Boarding Call: An overview of the alternative industry’s preparedness for AIFMD:
- Just 52 percent of AIFMs have conducted an impact analysis that takes into account the advice from the European Securities and Markets Authority (ESMA), which was published in November 2011.
- 63 percent of AIFMs have not appointed a depositary, a key requirement of the legislation.
- Nearly half (45 percent) of AIFMs surveyed say they have not yet considered how the Directive’s remuneration requirements will affect their businesses.
- Two-thirds (66 percent) are waiting to see what is involved in the EU passport before deciding whether or not to use it.
“We find this ‘wait and see’ approach among AIFMs quite alarming, considering the broad impact the AIFMD will have on their overall businesses,” said Charles Muller, Head of the KPMG European Centre of Excellence for Investment Management. “With the compliance deadline looming large on the horizon, we feel this is really the last boarding call for fund managers to prepare for the legislation. Delaying their preparations any longer could have significant negative impacts on their operations, fundraising activities and long-term profitability.”
KPMG believes the negative impacts facing AIFMs that continue to delay their preparations for the Directive may manifest themselves in numerous areas, including, but not limited to, fundraising activities, operations and business models:
Fundraising activities: AIFMs that fail to achieve compliance with the Directive by the July 2013 deadline will be prevented from raising new funds in Europe. In addition, firms that choose to wait to conduct their assessments and to embark upon their implementation plans are likely to find themselves racing against the clock and paying higher costs.
Operations: The Directive will require AIFMs to introduce a host of operational changes to their businesses. The process of implementing these sweeping changes to areas such as leverage calculation, remuneration and others promises to be much more costly and complex for those AIFMs that continue to delay their preparation activities.
Business Models: The AIFMD will also necessitate significant changes to AIFMs’ business models, including the area of taxation. KPMG’s survey revealed 28 percent of respondents feel the Directive will have tax implications on some of their fund structures, while 8 percent said it will have a significant tax impact. In addition, the AIFMD is one of several high-profile regulatory change programs AIFMs are being asked to implement over the next few years (e.g. the Dodd-Frank Wall Street Reform and Consumer Protection Act, CRD, MiFID, etc.). Delaying their preparations for the AIFMD may stress their capacity to simultaneously implement these other regulatory changes.
The Time to Act is Now
For many AIFMs that continue to delay preparations for the AIFMD, the result will be operational problems, higher costs and the potential loss of clients. The larger the firm, the more pronounced these implications are likely to be, given their higher risk profiles, higher flows and the challenges they may have finding a depositary.
“The arguments in favor of getting AIFMD preparations underway as early as possible are compelling,” said Muller. “Those firms that have not already conducted an in-depth impact analysis of the AIFMD for their business would be well-advised to do so without delay, as the business implications are significant, the amount of work to be done is substantial and the timelines for preparation are becoming increasingly short.”
By embarking on this work now, AIFMs will position themselves to achieve compliance under the directive and maintain long-term profitability under these stringent new rules.
“Every asset manager worldwide who raises capital in the EU has to comply with AIFMD, including alternative investment managers based in the U.S." said Mikael Johnson, Lead Partner of Alternative Investments for KPMG LLP U.S. “Yet many of these firms have taken no significant action, with the July 2013 deadline fast approaching. The time to prepare is now. Delaying preparations any longer may have significant negative impacts on their operations, fundraising activities and long-term profitability.”
About the Report
KPMG conducted its third annual global AIFMD survey with over 70 respondents comprising C-level and senior executives from a broad range of alternative investment management firms, ranging in size from some of the industry’s specialist niche providers to some of its largest and most prominent firms. The research upon which this report is based was conducted between March and September 2012 and consisted of responses to an anonymous online questionnaire, as well as a series of structured interviews with survey respondents.
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About KPMG International
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 152 countries and have 145,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.