International fund lobby groups including ICI Global, the Managed Funds Association and hedge fund association AIMA, as well as the UK’s Investment Management Association and Germany’s BVI, are understood to have met last week with AFME, the bank trade body, and several investment banks to thrash out a compromise.
A key issue for fund companies is that under the AIFM Directive, they must ensure that investment banks retain a 5 per cent stake in the securitisations they have issued, which can range from car and credit card loans to commercial mortgage-backed loans or asset backed paper.
Further complicating matters for fund managers is the fact that the definition of securitisation has been broadened under the AIFM Directive to include any loan that has been separated into tranches. This means that many AIFM-compliant hedge funds with fixed income exposure now risk falling foul of European regulators if they do not correctly identify securitisations they are exposed to, or if they lose track of whether a bank has retained its stake.
Richard Hopkin, managing director of the securitisation division at AFME, denied that banks were reluctant to provide complete disclosure to hedge funds over securitisations. He said the purpose of the meeting between asset management and bank representatives was for the banks to “share the experience they have garnered in how to approach these requirements of risk retention and due diligence”.
Discussions between the two sides are expected to continue in order to find a solution before the grandfathering period for the AIFM Directive ends in July 2014.
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