French asset management companies are ready to seize the benefits of the AIFMD
September 2014 | SPECIAL REPORT: PRIVATE EQUITY
Financier Worldwide Magazine
The 22 July 2014 marked a significant milestone for the European asset management industry, in particular for the alternative investment fund industry. Indeed, all existing European alternative investment fund managers were required to apply for their authorisation as AIFMs by that date. This deadline was met with varying success across the EU. At the time of writing, the record updated by ESMA showing the number of authorised AIFMs counted 511 at EU level, including almost 200 in France and in Germany, 69 in Luxembourg, 14 in Ireland, and none in the UK and Italy. It appears that a lot of work is still needed.
Indeed, implementing the AIFMD has not been easy in all Member States. The Directive was published in the Official Journal of the EU on 1 July 2011, with a two year transposition period. Complementing texts were released later, leaving very little time for transposition by the Member States and implementation by the industry. For instance, the regulatory technical standards defining the different types of AIFMs were released after 22 July 2013. In this context, it was a real challenge to introduce the new rules in national legal frameworks.
Actually, some Member States are currently still struggling to do so and it is difficult to foresee when the Directive will actually be in place across the whole of the EU. Thankfully, an opinion published by ESMA clarifies that a late transposition should not prevent AIFMs authorised in their home Member State from ‘passporting’ their funds and services in Member States which missed the transposition deadline. Thus, authorised AIFMs can benefit from the passport without delay.
France is among the leaders in transposing and implementing the new Directive. It was certainly a major challenge and a key issue for the French investment fund industry. Indeed, over 300 French asset management companies manage 8500 French AIFs with assets totalling €860bn. The categories of French AIFs cover a comprehensive range (private equity funds, real estate collective investment undertakings, retail investment funds, securitisation funds, professional investment funds, etc.). All French asset management companies concerned are now expected to have submitted their application for authorisation as AIFMs to the French Monetary and Financial Authority AMF (it is worth bearing in mind that in any case management companies are expected to comply with the AIFMD as of that date). The AMF announced that it would process pending applications within six months.
This success mainly results from long and concerted efforts on the part of the French authorities and of the industry. Very early on in the legislative process, French asset management companies engaged with policymakers, both at European and French level. Indeed, they did not consider the new Directive as a threat but rather as an opportunity. Although the initial draft published by the European Commission needed some substantial improvements, they saw it as a chance to benefit from a passport for their funds and services applicable throughout the Union.
Indeed, they were intending to build on the international success of the UCITS Directive. As many of them manage both UCITS and AIFs, their aim was to make both sets of rules as consistent as possible, allowing, of course, for the specificities of the two types of funds. As the French legal framework was already largely applying to non UCITS managers – it is estimated that French rules were 90 percent compatible with the AIFM regime – it did not require as much effort as in some other jurisdictions to comply with the new rules.
In addition, French authorities were determined to transpose the European texts as faithfully and efficiently as possible. They worked together with the industry with a view to anticipate as far as possible the implementation of the Directive. As a result, the AIFMD was transposed on time. The relevant texts have now all been introduced into French law, including the recently published AMF ‘instructions’ on the marketing of AIFs and on the ‘passporting’ of MiFID services performed by authorised AIFMs (introduced by the revised version of the MiFID published in June 2014).
The AMF authorisation desk opened as early as the end of 2013: French asset managers could thus submit their applications well in advance of the 22 July 2014 deadline. This definitely helped to smooth the authorisation process and to increase the turnaround of applications. Further, the AMF took the pragmatic approach of focusing on eight specific topics (i.e., liquidity, delegation, securitisation, own capital, reporting and leverage, valuation, remuneration and depositary) when examining the applications received. This helped the AMF to deliver AIFM licences more quickly than in other jurisdictions.
The implementation of the AIFMD was an opportunity to modernise the French legal framework and streamline the range of alternative funds. In particular, Professional Special Funds were designed to answer the specific needs of international investors and offer full freedom to determine the eligible assets, the investment strategy and the fund organisation.
French asset managers are definitely ready to seize the benefits of the passport offered by the AIFMD and from the arising AIFM label that is increasingly asked for by third country professional investors. In this respect, it should be highlighted that not only large French investment management companies obtained their AIFM licence; many French asset management companies exempted from the AIFMD actually decided to ‘opt-in’ and to place themselves under the Directive. A study by Kurt Salmon dated January 2014 reports that 62 percent of managers under the thresholds set by the Directive that took part in the survey were planning to do so. Indeed, they believe that the AIFMD offers more opportunities than it sets obstacles.
French asset managers are now looking forward to the formation of what will hopefully become a true label in the alternative investment space, alongside the internationally recognised UCITS label. However, already another deadline is looming: that of the possible extension of the passport to third country managers or funds. ESMA has indeed started working on the advice it is expected to provide next year.
Carine Delfrayssi is Deputy Head of the International Affairs Division at AFG (Association Française de la Gestion financière). She can be contacted on +33 1 4494 9658 or by email: email@example.com.
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AFG (Association Française de la Gestion financière)