The European Commission (EC) has proposed a Directive on Alternative Investment Fund Managers (AIFM) to create a comprehensive and effective regulatory and supervisory framework for AIFM in the European Union.
AIFM, which include the managers of hedge funds and private equity funds, managed around €2 trillion in assets at the end of 2008.
In Ireland, managers and funds are regulated by the Financial Regulator. Funds are not included in the proposal.
The proposal contains a series of common rules which apply across the industry. These are complemented by specific rules for, respectively, hedge funds and private equity. As regards the common rules these will make sure that:
- All managers as well as the funds these managers manage will be notified to authorities.
- Strict controls will be placed on asset depositaries and valuation agents.
- Managers will be required to disclose regularly comprehensive information to regulators.
- The Directive will require a high standard of risk and liquidity management from managers.
- It will put in place safeguards to ensure that professional investors are treated fairly and can conduct effective due diligence.
As regards private equity, managers will need to produce disclosures for key stakeholders, including employees. This will help to improve the transparency and accountability of the buy-out activity.
EU based hedge fund managers with more than €100 million in assets will be required to register with national regulators under the proposed rules.
The plan exempts managers that lock in investors for five years and avoid leverage (money borrowed to boost returns) requiring them to register and disclose information only if their assets exceed €500 million.
The proposal now passes to the European Parliament and Council for consideration.