EU Directive on Alternative Investment Fund Managers misguided: PwC

The publication of the EU's proposed Directive on Alternative Investment Fund Managers, as it stands, could risk forcing the alternative asset management industry into radical restructuring due to an overreaching proposal to govern unregulated funds, PricewaterhouseCoopers has warned.

The proposal not only catches hedge funds and private equity funds but also real estate funds, commodity funds and other types of institutional funds, PwC said.

'I think that it will come as a surprise to most people in the real estate industry that the directive is also intended to apply to real estate fund managers, and the impact could be very wide ranging,' said John Forbes, PWC's head of real estate EMEA.

He added: 'It is not clear how extensive consultation has been with real estate industry, but there is clearly a lot of work that needs to be done on the detail if this is not to have a damaging effect on the industry at the worst possible time.'

While the European Commission's efforts to tackle systemic risk were understandable and correct, PWC said it remains unconvinced that the draft presented is a proportionate means of addressing this objective.

'The Directive is too wide-ranging, catching all collective investment vehicles other than UCITS in its net, which is unnecessary and misguided. We echo the concerns of the key trade bodies in their criticism of the catch-all effect and unintended consequences it appears to have on sectors of business where no material systemic issues have been identified or which are already subject to perfectly adequate schemes of regulation,' said James Greig, partner, PricewaterhouseCoopers Legal.

'We are also concerned that funds caught by this Directive will be made subject to significant disclosure and transparency obligations and will, as investors, be at a competitive disadvantage to, for example, the sovereign wealth funds and other investors expressly excluded from its ambit.'

PWC is concerned about the reduction of the threshold of fund managers which will catch those managing portfolios of EUR 100 mln or more, or EUR 500 mln in the case of unleveraged funds with investor lock-ins. This will potentially saddle relatively small funds with big administration and compliance burdens. The investor protection mechanics (governance requirements, reporting requirements, external valuation and custodian requirements) also appear disproportionate to a regime which is focused on professional investors only.

'From an international perspective, the draft gives rise to serious competitive concerns, given the lack of clarity and detail about the position of EU resident administrators, asset managers and advisers servicing non-EU fund complexes,' Greig concluded.