Article by Peter D. Astleford and Jim Baird Introduction There has been much discussion recently centered around the proposals of the European Commission for a Directive on Alternative Investment Fund Managers (the "Directive"). Much of the debate to date has focused on the potentially far-reaching impact of the Directive on alternative investment fund managers ("AIFM") and other service providers to the fund industry.
However, there is an increasingly audible voice from another quarter—that of the professional investor community.
While the Directive aims primarily to reduce systemic risk, another stated objective, and the focus of a large part of its provisions, is the protection of investors. The professional investor community stands to benefit from an increase in the level of investor protection under the Directive, but will also indirectly bear much of the associated compliance costs. The views of the investment community are therefore particularly relevant, both as a potential beneficiary of the advantages, and as an underwriter of the cost, of the Directive. Furthermore, the professional investor community (the sector to whom marketing of investments falling within the Directive is generally limited) is by definition skilled in assessing the merits of the investments it makes and therefore well placed to judge whether the costs the Directive would bring are warranted by the level of protection afforded.
The Directive has a number of potential advantages: it would, in many cases, raise regulatory standards for the AIFM industry and would, through the new passport, facilitate pan-European marketing of European alternative investment funds ("AIF"). It would ensure that AIF marketed in the EU benefit from independent valuation and a depository network complying with European standards. It would also provide benefits for investors in terms of increased transparency and disclosure.
However, the Directive is not without disadvantages, which have been well documented in the legal press in relation to AIFM. The sections below contain a checklist of some of the implications of the Directive as they affect the professional investor community.
As we go to press, the Swedish government, as the President of the Council of the European Union, is consulting with other EU Member States on potentially far-reaching changes to the Directive. The proposals consider, amongst a range of options, the relaxation of the blanket limits on leverage, removing...