European Commission evaluates impact of AIFMD
The European Commission has issued an evaluation of the impacts of AIFMD to date, to the European Parliament and the Council.
Conducted by KPMG, the survey covered 15 EU member states, and assessed whether specific rules are considered effective, efficient, coherent and relevant by stakeholders. It also indicates whether the rules support EU measures to achieve the objectives of the AIFMD and identifies areas to consider for further improvement.
Impacts on AIFs and AIFMs
According to the report, since the AIFMD was adopted in 2011, total net assets of funds have increased from €2.3trn to €5.9trn. Additionally, cross-border distribution of AIFs increased from 3% to 5.8% of AIFs between July 2017 and October 2019.
The majority of AIFMs, public authorities and LPs said access to national markets had increased because of AIFMD, however 34% also reported an increased time to market.
Distribution to retail investors
Samuel Brooks, partner at law firm Macfarlanes highlighted as things stand, an AIFMD’s marketing passport can only be used by AIFMs to market to professional investors, while cross-border distribution to semi-professional and retail investors is heavily restricted.
The report indicates the Commission’s CMU related work is focusing on improving the distribution of investment products and reviewing disclosure requirements. This could result in improved AIF distribution to semi-professional or retail investors in the future.
National Private Placement Regimes
The survey acknowledges stakeholders feel NPPRs are important because they allow EU investors to access private global markets, while there is no AIFM passport for third country entities.
However, it also indicates NPPRs differ between EU member states and allows non-EU AIFMs to market to EU investors by only complying with a limited number of AIFMD requirements. The document suggests this has resulted in an “un-level playing field between EU and non-EU AIFMs. Some member states have closed access to third country entities completely, others suggest harmonising NPPRsS. Stakeholders have also suggested phasing out NPPRs and creating an AIFMD passport for third country entities instead, as the most viable solution.
Brooks noted there is no depositary passport and the report suggested this is “at odds with the spirit of the single market”.
Loan origination funds
The report acknowledged an increase in non-bank lending, but said it “raises financial stability concerns.”
As a result, the survey revealed several stakeholders have asked the Commission to reassess the case for setting common standards for loan-originating AIFs.
Brooks noted this signifies a potential future increase in regulation of managers pursuing direct lending and other similar strategies.
The report saidys AIFMD’s asset-stripping rules, which apply to PE funds, are “not overly burdensome”, however the Commission couldn’t determine whether or not they have added value due to the lack of available data.
Brooks said the Commission has given no indication the asset-stripping rules will be removed or diluted.
Sub-threshold AIFMs, which are PE fund managers whose portfolio size do not adhere to the regulatory parameters of AIFMD or the EuVECA Regulation, encounter significant barriers to marketing their funds because they can’t use an AIFMD’s marketing passport.
The report said stakeholders have suggested amending the AIFMD to better accommodate private equity by removing any unnecessary charges and find more effective ways to protect non-listed companies. Brooks explained these unnecessary charges are most likely NPPR fees charged by regulators.
Following the submission of the report to the EU Parliament and Council, the Commission will put forward any proposals for amendments to improve the directive. However, the Commission stated it is “still assessing the need for further proposals in this domain.”
It’s worth noting while no proposals have been made yet, it is still possible some may be suggested in the future.