What is AIFM?
The AIFM (Alternative Investment Fund Managers) Directive
The financial crisis exposed a series of vulnerabilities in the global financial system. It highlighted how risks crystallising in one sector can be transmitted rapidly around the financial system, with serious repercussions for all financial market participants and for the stability of the underlying markets.
AIFM forms part of an ambitious European Commission programme to extend appropriate regulation and oversight to all actors and activities that embed significant risks. The legislation introduces harmonised requirements for people and organisations engaged in the management and administration of alternative investment funds (AIFM).
The need for closer regulation in this sector has been highlighted by the European Parliament and in particular the ECON committee (of which I am Chair) as well as by the High-Level Group on Financial Supervision chaired by Jacques de Larosière. The AIFM Directive was also discussed at international level, for example in the G20, International Organisation of Securities Commission (IOSCO) and the Financial Stability Forum.
The funds in question are defined as all funds that are not regulated under the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. Around €2 trillion in assets are currently managed by AIFM employing a variety of investment techniques, investing in different asset markets and catering to different investor populations. The sector includes hedge funds and private equity, as well as real estate funds, commodity funds, infrastructure funds and other types of institutional fund.
The financial crisis underlined the extent to which AIFM are vulnerable to a wide range of risks. These risks are of direct concern to the investors in those funds, but also present a threat to creditors who lend fund managers money, the people they trade with and to the stability and integrity of European financial markets more generally.
The European Commission therefore proposed a Directive on Alternative Investment Fund Managers (AIFMs) with the objective to create a comprehensive and effective regulatory and supervisory framework for AIFMs at the European level.
The Directive provides robust and harmonised regulatory standards for all AIFM within scope and enhances the transparency of the activities of AIFM and the funds they manage towards investors and public authorities. It enables Member States, such as the UK (where most Hedge Funds are based), to improve the general oversight of the sector and to take coordinated action when necessary to ensure the proper functioning of their financial markets.
The Directive will help to overcome gaps and inconsistencies in existing regulatory frameworks at national level and will provide a secure basis for the development of the internal market in the EU.
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