The AIFMD Implementation and the Shape of the Fund Management Industry

One of the most contentious issues arising in the wake of the financial crisis has been the role of the alternative investment fund management industry. Part of the problem has been that elements of the fund management industry have been identified in some jurisdictions as being in some way responsible for the crisis, a view which is by no means universally shared. However, in a climate in which looking for someone to blame is still prevalent, increasing regulation for hedge funds and private equity firms can seem an attractive option. The proposals over the Alternative Investment Fund Management Directive (the “AIFM directive”) have drawn both praise and criticism and the process by which these proposals are going to be implemented appear to be getting drawn out yet further and may even be subject to even more moderation. This reflects, in some cases, differences in emphasis on the part of the EU’s Council of Ministers in comparison to those of the European Parliament. It may also reflect a more effective push-back from the industry and, to a degree, differences in regulatory priorities between countries.

Regardless of how the final version of the AIFM directive pans out, several questions remain to be asked on the future of the alternative investment fund management industry. If banks are constrained in the process of financial intermediation by new capital restrictions, what alternative forms of financial intermediation are likely to fill the gap? A number of governments are keen to encourage small and medium sized businesses to grow, so where will such firms find the funding they need? Is constraining the alternative investment fund management industry likely to impede the supply of capital to the all-important fast growing emerging economies? Can a way be found to balance the governance objectives of many regulators with the entrepreneurial nature of many alternative investment fund management institutions? Will the introduction of more intrusive rules in one region drive this element of financial intermediation into less heavily regulated jurisdictions and thus exacerbate the problem of effective supervision? Furthermore, will overly intrusive regulation lead to a sub-optimal level of financial intermediation?

The ICFR is keen to explore these and other issues surrounding the introduction and implementation of the AIFM directive. To this end we will be organising workshops and roundtables in the autumn to identify possible areas for further study. Hence we encourage anyone working in these and related issues to join with us in this project.

For more information, please contact us at research@icffr.org