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Many are currently wondering whether the passporting options under the AIFMD – only available when a fund is incorporated onshore, i.e. in the EU – will redefine the European hedge fund landscape in the sense that jurisdictions such as Cayman or BVI may soon be replaced by countries such as Malta or Cyprus.
Countries such as Ireland or Luxembourg, traditional homes to UCITS funds are now being considered as potential jurisdictions for non-UCITS funds to an extent that had not been the case previously.
The popularity of the liquid alternatives in Europe is also driving many funds onshore, which, all taken in combination makes one wonder about the relevance of the offshore (e.g. Cayman) model as far as European managers are concerned: with US laws surrounding tax and transparency becoming more stringent, many European managers choose upfront not to accept US investors, which compounds the possibility of the offshore model falling completely into disrepair in Europe. Whilst this remains to be seen in practice, this also acts as a reminder of Europe and the US being two different markets.
Related to the fact that the AIFMD is in the process of changing the European hedge fund landscape is the possibility of the return of private investors to the hedge fund world. A renewed interest in the asset class on the part of private investors would be a way of for the industry to come back full circle, after the sector’s institutionalisation since the beginning of the financial crisis. A more regulated, and hence “safer” environment, the existence of a new middle ground with the proliferation of the converging alternative UCITS model, both concur to explaining why private investors may be returning to hedge funds as an asset class.
The AIFMD’s uncertainty towards marketing rules is, in this case, only part of the equation: while regulatory grey areas do remain of concern, the commercial dynamics impacting the PB business, the relative scarcity of capital over recent years, and the fact that many clients now fall outside the perimeter within which they would be offered those cap intro services have led to other ways for managers to meet investors: IT-based solutions, specialist publications hosting events for the purpose of such encounters between hedge funds and their potential investors, have been new ways of exploring the potential gap PB cap intro teams will have left behind. These solutions will continue to develop and to evolve.