ALFI blog: Everyone loves ESMA

There are suggestions that delegates to the ALFI Alternative Investment Funds Conference are raising a glass to regulator ESMA’s latest response to the Alternative Investment Fund Managers Directive (AIFMD).

A new fan club has appeared. You won’t find it on Facebook or Twitter, but alternative fund management firms across the world are quietly paying homage to the European Securities and Markets Authority (ESMA).

ESMA’s pronouncements last week are set to ensure that some of the more draconian elements – equivalence and delegation – of the Alternative Investment Fund Managers’ Directive (AIFMD) cause a lot less concern than when the Directive was conceived back in 2009.

As they stood before ESMA’s announcement, the rules would have made it difficult for EU fund promoters to delegate portfolio management to non-EU managers. Managers in non-EU jurisdictions would have had to undergo stringent equivalence tests to prove that the foreign jurisdiction had in place a framework that was acceptable to the EU. The net effect would have been great difficulty for investors to access strategies in Asia and other fast-growing regions. In addition, non-EU fund managers could have effectively been cut off from European investors.

Fund managers are not yet in full celebratory mode, but many are raising a glass to ESMA.

Alex Nightingale, director of legal and compliance at Blackrock, told Alfi delegates that ESMA had done well to put together its level II guidance on AIMFD in such a short timeframe and also to have come up with a structure that did not appear to disadvantage the alternatives industry.

“It is significant that we have ended up with a workable third-country test,” said Nightingale. “It is vital for us. It means investment managers can access the best expertise either in the EU or globally.” He pointed out that the test would have been hard to apply even to well-established jurisdictions such as Hong Kong, the US, Australia and Switzerland because while the rules are similar, they are not necessarily equivalent.

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