The Dutch fought the law (sort of), but the law will win, says Shayla Walmsley.
On the face of it, you can see European regulators might be pleased with the Netherlands. After all, in October, the Dutch House of Representatives saw the Alternative Investment Fund Managers Directive (AIFMD) over the first hurdle of transposition in record time.
The problem is that the Dutch version, as debated in the lower house, included a somewhat significant caveat. Managers of pooled structures with exclusively pension fund investors would be exempt.
Then finance minister Jan Kees de Jager was not happy. Before the vote, he defended supervision of the would-be exempt managers, pointing out that it would create a non-level playing field and pre-empt what might in any case never come to pass.
His latter point was a ploy: the chances of the European Commission rethinking the scope of the directive to exclude pension funds were and still are pretty slim. As CMS Cameron McKenna real estate partner Melville Rodrigues points out, this is not a piece of legislation with much scope for arbitrage.
The oddity is that there should be 'versions' of a maximum harmonisation directive. "I'm not surprised the foreign ministry would be concerned – the government would be in breach of European law if it allowed the exemption," Rodrigues says.
Although there are elements of discretion – for example, UK regulator the FSA is still consulting on the stipulations over depositories – they do not amount to category exemptions.
On the other hand, you can see why pension fund managers might like one. Although APG has not confirmed it was behind the proposal, the pension fund manager did write to the European Securities Markets Authority (ESMA) last year expressing concern over the directive's depository and delegation requirements "regardless whether [they are] applicable to APG or its activities".
Even if the exemption were legal, there are reasons why it might be problematic.
The first is that it would breach the Europe-wide requirement for a level playing field. As Bouwfounds REIM fund director Xavier Jongen points out, allowing pension funds to stay outside the scope of the directive would effectively create a two-tier management industry by imposing costs on one set of managers but not the other.
One argument for the exemption has been that pension fund investments are outside the scope for the AIFMD and the manager of a fund with only pension fund investors should be exempted as well since the form of the investments should not matter. Yet as Gert-Jan Hoeve, senior manager for financial services at KPMG in Utrecht, points out, the activities of the manager of a fund with pension fund investors are the same as any other manager's activities. "From that perspective, there is no reason to come up with an exemption," he says. "Because the purpose of the legislation is to protect institutional investors and reduce systemic risk, it does not seem logical to exclude collective asset management of pension funds."
The question then is whether it protects institutional investors. Professional investors, including pension funds, are not really helped by the provisions fund managers will have to implement, according to Jongen. "Costs will be pushed back to pension funds, and onto their members," he says. "Why would we want to pay for a bureaucracy that changes nothing?"
Even so, the Dutch proposal stands virtually no chance of success. "The proposal is highly unlikely to succeed," says Hoeve. "The surprise is that it passed so quickly through the lower house with so few questions asked."
Chances are it will either get modified in the upper house or get through and be challenged by ESMA in the European Court. An ESMA spokesman declined this week to venture an opinion on the Dutch decision, but did point out that it could issue guidelines and opinions "should it want to clarify certain issues".
In the meantime, KPMG is advising its clients not to wait.