Charles River Associates (CRA) was asked by the Financial Services Authority (FSA) to conduct an assessment of the impact of the proposed Alternative Investment Fund Manager Directive (AIFMD) on investors, financial markets and enterprise across the European Union (EU).
The AIFMD will have significant impacts in terms of reduced investor choice and substantial compliance costs for the Alternative Investment Fund (AIF) industry (which themselves will be passed on to investors, ultimately resulting in lower returns). A loss of access to AIF reduces the variety and quality of funds and the reduction in choice was estimated as leading to a reduction in annual returns for EU pension funds of €1.4 billion
AIF contain a wide variety of financial instruments, bringing different benefits to investors, using different business models and representing different regulatory challenges. Although the Directive attempts to address particular concerns arising from some types of funds, the universal application of one set of rules on such different types of fund results in compliance costs which are significant. One-off costs were up to €3.2 billion with ongoing costs of €311 million. The Directive will cause a fundamental re-organisation in the business model of global fund mangers (with significant one-off costs) and may lead to costly changes of legal structures and domicile. It also brings costs associated to valuators and depositaries which do not seem to be matched with benefits for at least some of the fund types considered.
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