The Alternative Investment Management Association (AIMA), the global hedge fund association, has responded to a consultation by the European Securities and Markets Authority (ESMA) on how the Alternative Investment Fund Managers Directive (AIFMD) should be implemented.
ESMA, which is responsible for advising the European Commission on the implementing measures for the AIFMD, sought feedback on a consultation paper it circulated in July.
AIMA said many of ESMA’s draft proposals were “measured”, but several major areas of concern remained, including proposals relating to depositaries, leverage, valuation, transparency and liquidity management. So-called third country (non-EU) issues are covered by a separate and on-going ESMA consultation exercise.
Where possible, AIMA has strived in its 111-page response to provide an economic impact assessment of the Directive as well as detailed legal analysis.
For example, an AIMA study into the potential impact on depositaries found that, under the most adverse scenario, the total cost to hedge funds of implementing the more draconian options proposed in the paper could be more than US$6 billion.
AIMA said that those costs inevitably would be passed on to hedge fund investors such as pension funds, charities, universities and insurers. The Directive could lead to such high costs because depositaries would sharply increase their fees to funds to compensate them for the strict liability they would be expected to absorb for any losses incurred by unaffiliated sub-custodians which the former cannot realistically control.
AIMA CEO Andrew Baker said: “We wish to congratulate ESMA on a job well done in difficult circumstances and to a tight timetable. We hope they finalise the advice in the independent and evidence-based spirit in which they produced this consultation document.
“However, there remain a number of areas that continue to cause us difficulty, most notably the proposals relating to depositaries. While some of the proposals made by ESMA in this area are undoubtedly welcome, we are concerned that some of the options on the table are so extreme that the eventual regime could end up being not only wholly unworkable but also potentially dangerous by greatly increasing systemic risk. We would urge ESMA to look again at these proposals and opt for the more practicable options they put forward.”
The AIMA response can be viewed on ESMA’s website here: http://www.esma.europa.eu/index.php?page=response_details&c_id=185&r_id=6434.