Asset Management
Asset Management
by Arthur Carabia and Irene Rey
AIFMD and ELTIF reviews The European Commission (EC) published on 25 November 2021 its long awaited proposals to review the Alternative Investment Fund Managers Directive (AIFMD) and the European Long-Term Investment Funds (ELTIF) Regulation, as part of a series of measures to bolster the Capital Markets Union (CMU). Before going into the details of the two proposals, it is important to put these two texts into perspective. On the one hand, the AIFMD review, which also amends the UCITS Directive, will impact the entire EU fund industry (ie AIFs with €7.7 trillion in AUM and UCITS with €13.1 trillion in AUM). On the other hand, the ELTIF review remains an optional label available to AIFs following specific investment and risk management rules. (So far ELTIFs have managed only €2.4 billion in AUM).
Key amendments to the AIFMD and the UCITS Directive The AIFMD review has potentially far reaching consequences for the asset management industry. Both the AIFMD and the UCITS Directive will be amended in accordance with four core objectives : • Enhance supervisory data: The EC proposes to ‘‘improve access to relevant data collection for both national and EU authorities and remove inefficient reporting duplications’’. The change in the scope of supervisory reporting is not yet clear as ESMA is tasked to propose new supervisory reporting templates (not in place yet for UCITS). Undoubtedly, a change in requirements will necessarily imply a modification of firms’ reporting systems and another operational challenge is cost. It is worth remembering that there are currently around 300 data fields reported by AIFs (eg characteristics of the AIF, detailed information on assets, several risk features). This comes on top of other reporting requirements such as those under the Liquidity Stress Testing Guidelines, SFTR, EMIR and MiFID.
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• Harmonise Liquidity Management Tools (LMTs): The proposed amendments would require open-ended funds to choose, on top of suspension, one type of LMT (among a harmonised list) and notify NCAs when using such tools. Implementation measures developed by ESMA will specify the details of LMTs and the selection and use of suitable LMTs. NCAs would also be empowered to require fund managers to activate or desactivate LMTs. Although the fact that LMTs will now be available on a pan-European basis is welcome, it is worrying that the use of LMTs could be complicated by detailed provisions and that, if they were mandated by NCAs according to certain market parameters, this could actually generate procyclical behaviour. Ultimately, AMIC firmly believes that the deployment of LMTs should remain at the discretion of fund managers. • Delegation: The delegation allowed under the UCITS Directive and AIFMD enables asset managers to set up a fund in the EU and carry out portfolio management or risk management activities from other jurisdictions. The EC proposes to specify that AIFMs and UCITS management companies should employ at least two persons resident in the EU on a full-time basis as a minimum and that they must demonstrate that they have appropriate technical and human resources to supervise delegates. ESMA should be provided with delegation notifications where more than half of the portfolio management, or risk management functions, are delegated to entities located in third countries. A notification form with data fields will be developed by ESMA which will also be mandated to conduct peer reviews on the enforcement of delegation rules and in particular the prevention of letter-box entities (subject to a future delegated act for UCITS). While AMIC appreciates the EC’s targeted approach, the co-decision process and Level 2 mandates mean that the delegation model, which is crucial to global investors, is still at risk.
