Everyone knows that AIFMD compliance will be a long and arduous road, yet – even with looming deadlines now on the horizon – too few managers have summoned the courage to take the first significant steps.
A costly and complex journey
As I travel around the world talking with alternative fund managers, I’m frequently struck by the notable lack of action underway in the face of – what many would describe as – the most disruptive and potentially costly piece of legislation to ever hit the sector.
The fact that both EU and non-EU fund managers are worried about the cost, complexity and burden of AIFMD compliance is no secret; according to a very recent KPMG survey of hedge fund managers around the world , AIFMD is widely viewed as the most onerous regime with which to comply for fund managers. Take, for example, the fact that almost half of those impacted by AIFMD described the associated costs as ‘high’. Or that more than two thirds of respondents admitted that they needed outside help with AIFMD authorization and reporting.
Charting a course to compliance
For those operating in the alternative investment sector, these findings will not be surprising. Most managers are well aware that AIFMD compliance is a strategic issue that will require significant change to their operations: risk management, liquidity management, conflict of interest policies, capital, remuneration, delegation and outsourcing all come under the wide writ of this new regulatory initiative.
And as such, managers are increasingly recognizing that AIFMD is actually a business issue that can’t be simply punted over to the compliance department. Indeed, key decisions will need to be made from the start: Who will be registered as the manager of the fund? What tasks can be delegated or outsourced and what will need to be brought back in-house? Which functions will need to be separated to demonstrate independence? What staff should be in scope of remuneration policies?
Take stock before setting out
It is not surprising, therefore, that around two thirds of funds that we come into contact with have yet to truly come to terms with what AIFMD compliance will mean to their operations, let alone started to make the vital and fundamental changes that will need to come – fast and furious – if registration deadlines are to be met.
However, rather than rushing headlong into the tactics and detail of the regulation, we believe that fund managers – both inside and outside of the EU – should start by taking stock of their entire fund strategy to find ways to reduce complexity by, for example, rationalizing strategies, merging funds, centralizing management company activities, or even merging into one AIFM with multiple branches.
We believe that those managers that take this opportunity to ‘clean house’ now will not only reduce their compliance burden in the future, they will also streamline their operations and fine-tune their strategies.
But no matter where you start – whether it is reviewing your overall strategy or creating internal teams to drive the necessary change initiative – the point here is that you start. The bottom line is that doing nothing is simply not an option anymore.
By Robert Mirsky, Principal, Tax, KPMG in the US