In our first edition of VC Inform, we featured an article on the draft Directive on Alternative Investment Fund Managers (the AIFM Directive) published on 30 April 2009 by the European Commission in response to calls for greater Europe-wide regulation of investment fund managers.
With over 2,000 amendments currently tabled (something which is unprecedented in the history of EU financial service regulation) it would appear that there is clearly some way to go until a final text is agreed upon. The indication is, however, that the ambitious timetable set by the European Parliament to have the AIFM Directive adopted by May 2010 remains very much in place.
There are currently two drafts of the AIFM Directive (both published in late 2009) being lobbied by industry participants: one published by the European Union Council (currently referred to as the Revised Compromise Proposal) and the other published on behalf of the European Parliament by Jean-Paul Gauzès, the Rapporteur responsible for steering the Directive through the European Parliament (referred to as the Gauzès Report). A review of both the Revised Compromise Proposal and the Gauzès Report show important differences in approach between the two institutions and prevailing disagreement on a number of key issues, for example:
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Application: |
The Revised Compromise Proposal keeps the application of the AIFM Directives to all alternative investment fund managers established in a Member State of the EU which manage one or more alternative investment funds which are non-UCITS (regardless of whether or not the fund is established inside or outside of the EU). An exemption for managers managing assets of less than £100m (or £500m were redemptions in the fund are prohibited for the first five years and there is no leverage) would remain. The Gauzès Report, however, proposes removing the exemption meaning managers managing assets of any value will fall within the scope of the AIFM Directive (something which is likely to be strongly contested by VC Funds); and |
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Valuation: |
The need for funds to have an independent valuator has been eliminated by both the Revised Compromise Proposal and the Gauzès Report, however the Gauzès Report has gone further to suggest that a manager and its depositary would be jointly responsible for the proper valuation of the fund assets as well as the calculation of the net asset value of the fund, such an obligation being non-delegable and therefore likely to increase depositary fees hand-in-hand with the increase in potential liability. |
Adding more fuel to the fire, the Legal Affairs Committee of the European Parliament (JURI) recently released its opinion on those areas of the AIFM Directive that would affect Member States' company law to ECON (the lead committee for the European Parliament on this file) which will need to be incorporated within the European Parliament's position before a critical vote in April. However, the report published by JURI does appear to have gone beyond its remit and has called, among other things, for "the regulation of funds in addition to fund managers to cover "Alternative Investment" as a product" and which appear at odds with the AIFM Directive proposals to date.
Recent updates received from the EVCA also suggest that the Council itself is currently deadlocked with a blocking number of Member States (led by the UK) opposing tightening of the text and a number of countries including France and Germany proposing stricter provisions within the AIFM Directive. The Council will clearly need to agree its own broad position on the overall scope of the AIFM Directive and the third country regime (among others still in disagreement) before any progress can be made in reaching any agreement JURI and Parliament to produce a First Reading Agreement and avoid extending the deliberation process by another six months, which, as stated by the Chairman of the EVCA, "is not conductive to reaching proportionate and appropriate legislation".
The Council, JURI and Parliament will begin informal talks in the coming months to try and reach agreement. A first exchange of views was held by MEPs within the ECON Committee only last week with a second exchange of views scheduled for 17 March before the vote in April.
As highlighted by the EVCA this week, part of the complexity in reaching any sort of compromise is that national circumstance and personal experience (rather than any clear party political line) has played a major role in shaping the proposed amendments. We will be monitoring progress with interest and will provide further updates on any progress with the AIFM Directive in further editions of our VC Inform publication.
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