17 March 2015

Hedgeweek: How is more regulation impacting fund distribution?

Since the global financial crisis there has been a plethora of new regulation and legislation coming down the pipeline which, to a greater or lesser degree, is impacting international asset management, writes Dominic Wheatley, Chief Executive of Guernsey Finance.

The attraction of Guernsey for fund managers wishing to market into Europe is that it can provide a European platform but one which is not actually in the EU and therefore can offer a variety of options. For those marketing into Europe, the NPP route will likely be favoured by many due to the depth and breadth of requirements that fund managers will have to satisfy under AIFMD. Indeed, it is expected that full-blown AIFMD compliance will only be sought if there are particular reasons to do so.

For example, it makes commercial sense for a fund manager marketing almost exclusively to Europe to have a fully AIFMD compliant platform. However, this does not have to be based in a mainland European domicile and, indeed, it could be a Guernsey platform because the Island has also introduced a fully equivalent, opt-in AIFMD route to market.

However, managers should look carefully at whether the pan-European passport offered is relevant to their investor base. Many managers have increasingly geographically diverse investors and therefore it is essential to have a platform which suits all. European Directives – such as AIFMD but also the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive – cater for European investors; as such, if you do not need UCITS/AIFMD or only need limited access to them for certain investors, then it is advisable (and possible) to structure in a way that will greatly reduce the compliance obligations and costs that come with those regimes.

For those managers with elements of EU and non-EU business, the potentially onerous administration burden and costly compliance with AIFMD will mean that parallel structures are likely to be given serious consideration. It will be possible to break the non-EU business away into a parallel or feeder structure for which AIFMD compliance would neither be required nor necessary. 

Conversely, if a manager has a platform in a mainland European domicile then it will have to comply fully with AIFMD even if there were a large proportion of non-EU investors. European mainland platforms do not offer the ability to separate the reporting obligations away from non-EU investors, as with a Guernsey platform. In addition, managers and funds with no connection to the EU continue to be able to use Guernsey’s regulatory regime which is completely free from the requirements associated with AIFMD and as such, it will have significant operational and cost benefits. For example, Investec Asset Management recently re-domiciled a US$1.2 billion fund focused solely on non-EU investors from Ireland to Guernsey to take advantage of our dual regime response to AIFMD.

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