Fund managers on both sides of the Atlantic are grappling with Alternative Investment Fund Managers Directive, which applies to any fund that markets within Europe, regardless of where the fund is domiciled.

“If you are a [European] AIFM but you have an offshore fund, perhaps a Cayman, BVI or a Bermuda fund, which is extremely common, you find yourself in an interesting predicament,” Riva Waller, chief operating officer at International Standard Asset Management (ISAM), told Markets Media. “The directive still applies to you, you still need to be an AIFM, but only a limited degree of depository services will be required.”

This is s referred to as “depository lite,” said Waller. “You still have to have a depository service provider but it will function more as monitoring role and less of a custodian.”

For U.S. managers, there are questions about how AIMFD affects their business: How and where do they plan to market? Do they provide investment management services to a Europe AIFM?

In order to classify the portfolios of Alternative Investment Fund Managers into asset types and geographical categories, as defined by the European Securities and Markets Authority guidelines on data reporting obligations, AIFMs need access to specifically tailored reference data, including relevant codes.

Interactive Data is providing bespoke AIFMD reference data using Esma taxonomy to identify and define data items and asset types.

“Our Esma-defined, AIFMD-specific data items along with evaluation pricing data and analytics can help firms manage the transition to AIFMD and maintain ongoing compliance,” said Anthony Belcher, director of EMEA pricing and reference data at Interactive Data.

Managers in the UK who have applied for authorization as an AIFM have already gone through the exercise of updating their company compliance policies and procedures, as well as fund documentation, in order to submit their applications to the FCA in line with the regulatory deadlines set.

“The FCA was inundated with registration applications,” Waller said. “It was publicized that they were expecting 800 applications, and actually received over 900, and I would not be surprised if the final number they publish was even higher than that.”

The compliance checklist includes selecting and monitoring additional service providers such as a depository and potentially delegating to third parties to assist with Emir position level reporting requirements for AIFMs.

“There is an obvious cost to the fund for these additional services, some of which may be duplicative to the role of other fund service providers [i.e. administrators, independent directors, custodians],” said Waller.

ISAM has a UK office, and already had in place a robust compliance culture in the UK prior to AIFMD, according to Waller. “We have policies and procedures that are pursuant to FCA rules and regulations, so to become AIFMD compliant was really a matter of adjusting some of these policies and procedures and adding additional policies as part of the checklist that the AIFMD put in place.”

Besides internal procedures, ISAM spent a considerable amount of time working out arrangements with its service providers and negotiating the proper contracts. ”This is new to everyone, so negotiations can tend to be protracted as there is limited experience on both sides,” said Waller. “Of course, we also had to go through the exercise of updating all our fund documents once all arrangements were agreed and finalized.”

The bottom line is that there are a lot of open questions with respect to marketing in EEA member states under the national private placement regime. “The scary part is it’s a work in progress,” Waller said. “There are no precedents, but member state regulators do have the authority to come in and stop you from doing business.”

Featured image via Maxim Kazmin/Dollar Photo Club