EU directive will force major loss of business for alternative fund managers

The European Commission’s draft directive on alternative investment fund managers will cause fund managers to lose a major part of their business and negatively impact on investors if the directive is ratified, according to the Alternative Investment Management Association (AIMA).

The directive proposes fund managers and investors not based in Europe will need a passport to trade with Europe, which will not be available for up to three years after the directive is introduced. Passport applicants will need to demonstrate equivalence in regulation between Europe and their home jurisdiction.

Chairman of AIMA, Kim Ivey, said that matching the regulatory equivalence between Australia and Europe would mean revamping financial services licence regulations in such a way as to impose highly prescriptive capital requirements and “unwise” leverage restrictions on the industry.

“Local fund managers will face a major loss of business in the EU [European Union], particularly from London. Australian managers will be effectively locked out of the EU market for years and the consequences for Australian-based managers offering alternative investment products will be significant,” Ivey said.

European investors would also face higher costs, less investment choice, and diminished returns, he said.

Ivey labelled the directive a protectionist move, as it would be extremely difficult and costly for non-EU funds and managers to access the market.

The directive applies to private equity, real estate, infrastructure, and hedge funds.

Australian-based hedge funds manage millions of dollars on behalf of overseas investors.