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A recent survey released by INREV, the European non-listed fund association, seems to show that the wave of new European regulations now coming into effect, such as AIFMD, EMIR and Solvency II, is being handled better by fund managers than had earlier been feared. In fact, the survey concludes, fund managers are now growing increasingly confident about their ability to comply with the mass of extra EU red tape, although there are strong differences with how they are coping with the different sets of new regulations.
The survey of 55 fund managers, mainly European but also from the US, Australia and Singapore managing funds in Europe, shows that more than 80% of organisations have a compliance team working on AIFMD (Alternative Investment Fund Managers Directive) while about 50% are engaged with EMIR (European Markets Infrastructure Regulation). The former thus clearly requires more compliance effort than EMIR, so far at least.
According to INREV’s director of public affairs Jeff Rupp, "Regulation has been on the minds of fund managers and investors for the past few years. Now we’re finally getting a picture of the industry’s attitude to compliance. Most seem to have come to terms with the reality of regulation, and it is encouraging to see that many are ready to comply. However, questions remain about the practical implementation of AIFMD and EMIR. And the future of Solvency II is still unresolved."
Most fund managers have until July 2014 to apply for AIFMD authorisation, but over 61% of respondees intend to submit applications by the end of this year. Asked which elements of AIFMD they think most challenging, fund managers said remuneration requirements and changes in the mandatory use of depositaries rated highest. Nevertheless, less than 5% of fund managers surveyed believe that the regulation will delay funds being launched and almost none are considering moving their funds outside the EU as a consequence of AIFMD.
The financial burden of EMIR appears be less, with just under 50% of fund managers that will have to comply with its central clearing and cash collateral requirements identifying costs as significant. "Interestingly, even among those fund managers not expecting to have to comply .. more than half believe it will entail significant costs," said INREV (European Association for Investors in Non-Listed Real Estate Vehicles). "These costs are expected to be related to restructuring fund loans or implementing other risk management features in order to escape having to comply with EMIR’s central clearing and cash collateral requirements.
Despite all this willingness to comply, it’s also clear from the survey that healthy scepticism prevails among many fund managers as to the benefits of all the new laws and guidelines.
Only 30% believe that the EU passporting facility under AIFMD has any significant value, and the same proportion believes the EU will become a more attractive jurisdiction for investors as a result - with fully 25% saying it will become less attractive.
Despite political uncertainty surrounding Solvency II, nearly all the large insurance companies are already developing internal models as an alternative to the standard solvency capital requirement for real estate. Those that that have not done them cite costs as the major reason. Insurer respondents recognise the aims of Solvency II, including market stability, policy holder protection and investor transparency.
Most believe, however, that Solvency II will fail overall to reduce systemic risk and market volatility, and that achieving these may come at the cost of slowing European economic recovery, the INREV survey concludes.