With respect to the topic of delegation, the European Commission is considering whether it is necessary to restrict the ability of AIFMs to delegate key responsibilities to third parties (i.e. the letter box entity requirements). This is a contentious issue, as it can have a significant impact on the operating model of an AIFM. AIFMs need to understand the potential ramifications of these letter box entity requirements and begin planning for them. Delaying the required assessments and actions on this front, as with other key areas covered by the AIFMD, may result in the restricted ability to raise new capital and needless increased costs and resource allocations in the rush to achieve compliance before the deadline.
Another complicating factor working against AIFMs that have chosen to leave their AIFMD preparations until the rules are finalized revolves around the challenges they are likely to experience in appointing a depositary. When asked whether they had yet assigned a depositary in preparation for the AIFMD, 63 percent of respondents said they had not yet made this strategic decision.
And while the AIFMD is not specifically focused on taxation, it would be careless for alternative fund managers to assume that the Directive’s impacts will be ‘tax neutral’ in all instances. There will be significant taxation implications under the AIFMD regime, particularly in the areas of private equity and real estate. We are therefore advising private equity and real estate fund managers to conduct comprehensive assessments of the potential tax implications as part of their overall AIFMD preparation and compliance programs.
In our survey, 28 percent of respondents feel the Directive will have tax implications on some of their fund structures, while an additional 8 percent said the AIFMD will have a significant tax impact on their fund structures. To that end, fund managers’ operating models will need to be flexed to deal with current tax trends and their potential consequences.
In addition, delaying preparations for the AIFMD may stress fund managers’ capacity to implement the other concurrent regulatory change programs (e.g. MiFID, Dodd-Frank, etc).
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