Although the AIFMD is still somewhat in its youth, this key asset management Directive contains a review clause that required the European Commission to start to review the application and scope of the directive in July 2017. A first important milestone in this review was reached in January 2019 when the Commission published a report exploring whether the AIFMD’s objectives had been met. The report includes a number of key findings that give asset managers a taste of what might be to come in the second incarnation of this key legislation.
In the report, a number of AIFMD requirements were assessed against five major principles: effectiveness, efficiency, coherence, and relevance and EU added value. The European Commission engaged KPMG to prepare this report based on a survey covering 15 selected member states, with input from other jurisdictions, including non-EU countries.
Towards a less costly version of the AIFMD?
The overall findings indicate that the AIFMD has played a major role in helping to create an internal market for AIFs and a harmonized and stringent regulatory and supervisory framework for AIFMs. There was, though, an overriding concern that AIFMD implementation had been costly for both firms and regulators, with reportedly limited added value for investors. The large majority of institutional investors and their representative bodies said that the AIFMD had not influenced their decision to invest (or not) through AIFs, or to invest through EU/EEA AIFs rather than third country AIFs (or vice versa).
Exploring opportunities for improvement
Respondents to the survey identified a small number of areas where clarification or amendments would be beneficial, including:
- The EU marketing passport. The regime suffers from different approaches by national regulators. In relation to non-EU AIFs and AIFMs, developments vary markedly from one Member State to another.
- Large volumes of data are submitted by AIFMs to NCAs under the AIFMD reporting requirements, but not all the data may be essential, some may be insufficient and some are duplicative. There are also overlapping reporting obligations under other EU legislation.
- The binary choice in the valuation rules between internal or external valuation, and the differing national interpretations of the extent of the liability of external valuers, are assessed as having impaired the effectiveness of the rules for some asset classes and in some Member States.
- Survey data indicate that the use of high leverage is rare in AIFs. It would be helpful to harmonise the calculation methodologies for leverage across the AIFMD, the UCITS Directive and other relevant legislation, taking into consideration the recent recommendations of IOSCO.
- The extent of the notifications to NCAs under the rules for investments in non-listed companies is viewed as not useful or essential, and overly burdensome (especially given that many private equity/venture capital AIFMs are smaller companies, for whom the administrative burdens may be proportionately greater). Also, the meaning of “non-listed company”, and the application of the rules to investments in unlisted special purpose investment vehicles and unlisted UCITS or AIFs, are unclear.
What happens next?
The Commission describes KPMG’s report as the “first step” in the process of reviewing the directive. Given the Parliamentary elections in May and the push to get a number of outstanding proposals agreed (including the cross-border distribution proposal), it now seems unlikely that we will see anything further until later this year or early next.
We understand that the Commission may look at the reporting requirements and the calculation of leverage, but it is not clear what else will be on its agenda. Indeed, having already issued amendments on cross border marketing and asset segregation, it may not have an appetite for major change on other points.
As regards the non-EU marketing and managing passports, there remains no indication that the Commission will activate them soon.