Are Hedge Funds AIFMD Ready? Er, No.

Preqin research finds 78% of hedge fund managers are still not compliant with forthcoming AIFMD regulations.

(July 19, 2013) — Less than a quarter of hedge fund managers affected by the Alternative Investment Fund Managers Directive (AIFMD) are prepared for them, with 40% of them wilfully ignoring the rules until they’ve been finalised.

Of the 220 hedge funds interviews by data monitor Preqin, just 22% of are compliant with the forthcoming regulations, which will start to be phased in from July 22, 2013.  

The rules, which are designed to promote transparency, improve reporting and conduct of business, and bring independent custodianship to alternatives managers, are unpopular in some corners, as there’s a belief they will make EU players (and those non-EU countries which market alternative funds in the jurisdiction) uncompetitive.

This could explain why four in 10 of the hedge fund managers surveyed have decided to wait for the finalisation of the rules before taking action.

Preqin’s interviews also revealed that North American hedge fund managers that will be affected by the AIFMD are less prepared than their European counterparts.

Of the North American hedge fund managers questioned, 65% will be affected by the AIFMD, but so far just with 51% of them are already compliant or will be compliant by July 2014, the main deadline for most hedge fund managers.

In Europe, 64% of respondents believe they’ll be compliant by July 2014.

The biggest hedge fund managers that will be affected by AIFMD are the most prepared, with 65% of those with assets under management of more than $1 billion already compliant, or certain they will be by July 2014.

The smallest funds (those with $100 million to $499 million) are the next highest cohort to achieve compliance by July 2014, with 51% ready, leaving the medium sized hedge funds (those with $500 million to $999 million) trailing with just 31% of them ready to comply.

Amy Bensted, head of hedge fund products at Preqin, said: “Europe-based managers seem better prepared than their North American counterparts at this stage. The phased compliance period for non-EU managers means that a number of North American funds are choosing to wait and see the initial impact of the regulations in Europe before altering their processes.

“Many institutional investors have yet to be convinced about the benefits of regulation in the hedge fund industry and they will be watching closely to see the effect that the AIFMD has on the fund management industry.

“However, with more than a third of investors believing that regulation is positive for the industry, the potential is the AIFMD ‘brand’ could lead to greater inflows into hedge funds as investors seek out the regulator’s seal of approval. With uncertainty still surrounding the impact of the directive, it may not be possible to assess the full impact of the AIFMD on the hedge fund universe before 2014.”

Preqin surveyed more than 22 hedge fund managers in July: 61% were based in North America, 28% in Europe, 8% in Asia-Pacific and 3% in the rest of the world.

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