Despite the fact that the compliance deadline for one of the most ambitious and complex regulatory reform agendas ever introduced into the asset management industry is just seven months away, a surprising percentage of alternative investment fund managers (AIFMs) say they have yet to take any tangible steps to prepare for it, according to KPMG.
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. Nonetheless, a KPMG survey of more than 70 AIFMs reveals nearly half have not taken any concrete steps to analyse 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:
“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.”
Yesterday (19 December), the European Commission adopted the implementing rules 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.
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 eight 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 favour 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.”
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.
Media enquiries to:
Mark Hamilton, KPMG Corporate Communications 020 7694 2687
KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and operates from 22 offices across the UK with over 12,000 partners and staff. The UK firm recorded a turnover of £1.8 billion in the year ended September 2012. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 156 countries and have 152,000 professionals 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. KPMG International provides no client services.