AIFMD revision sparks fears over fund management delegation rules

Leading US and European funds houses have written a letter to the European Commission expressing their fears over the upcoming revision of the AIFM Directive.

In a letter to Michel Barnier (pictured) seen by Reuters, the fund managers say: “We are extremely concerned that the forthcoming ‘Level 2’ implementing measures for the Alternative Investment Fund Managers Directive will undermine the single market.”

The letter represents the views of 20 fund managers handling $3trn in assets in Europe, including Allianz, Axa, BlackRock, Fidelity and Schroders. Of particular concern are the proposals to clamp down on so called ‘letter box entities’, whereby a fund manager is registered in one jurisdiction but delegates operations to subsidiaries elsewhere, in or out of the European Union.

The measures are designed to ensure better governance of alternative investment funds, whether hedge funds, private equity, real estate or other alternative investments, but managers fear that a restriction on the freedom to delegate investment and risk management decisions to subsidiary offices in other jurisdictions would cause serious disruption to the asset management industry.

However, according to the FT, a Barnier spokesman said the rule aimed to ensure that the fund manager ‘stays in charge’, takes “strategic decisions on the overall investment strategy and is involved in their execution”.

He added: “What the rule on letterbox entities aims to prevent is the system where a few ‘breakfast directors’ meeting every six months to sign off on investment decisions masquerade as an alternative fund manager.”

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