The provisional political agreement reached on the Alternative Investment Fund Managers Directive (AIFMD) Review provides the regulatory stability that the Alternative Investment Management Association (AIMA) and its private credit affiliate the Alternative Credit Council (ACC) sought from the Review.
Reforms of delegation and liquidity management remain targeted and validate established practices that both policymakers and asset managers agree work well.
- Asset managers will continue to benefit from the ability to delegate portfolio or risk management to third parties, albeit with more requirements on substance and greater transparency to regulators regarding delegation arrangements.
- Firms will be subject to tighter restrictions around liquidity risk management.
- EU investors will continue to benefit from access to global expertise, as well as the broadest range of alternative investment strategies.
- The agreement also includes new rules for loan origination funds (LOFs) aimed at addressing financial stability concerns.
- Policymakers have made important changes to address the fragmented environment for LOFs and ensure that managers and their funds can lend on a cross-border basis subject to a single set of EU rules.
- LOFs will face higher levels of regulation when it comes to liquidity risk management, leverage and retention of loans to avoid ‘originate-to-distribute’ models.
- In addition to existing rules on leverage management, new differentiated leverage limits for open and closed-end funds will be set in the legislation – likely at 175% and 300% of NAV respectively.
AIMA and the ACC will continue to work closely with policymakers to address any outstanding technical matters and support our members with the implementation of these new rules.
The political agreement remains provisional, and the new requirements will not be confirmed until the legal text is finalized and published. Member States and the European Commission will then have 18 months to transpose the Directive into national law and finalize detailed technical rules implementing the legislation.
Jiri Krol, deputy CEO and global head of Government Affairs at AIMA said, in a statement: “We welcome most of the new rules on delegation, liquidity risk management and passporting for loan origination funds as relatively sensible. Some restrictions, such as leverage limits on loan funds, are difficult to justify but we have worked closely with policymakers to ensure they are better defined and calibrated than the original proposals.
“As usual, it’s a mixed bag and we hope the positive elements will outweigh the negatives. This agreement will provide our members with greater certainty on the future regulatory framework and allow them to focus on delivering returns to investors and capital to the economy.”
Deborah Zurkow, chair of the Alternative Credit Council and global head of Investments at Allianz Global Investors, said in a statement: “Private credit funds provide vital finance and liquidity to EU businesses helping them to invest, grow and create jobs across the continent. While some of the reforms introduced will support that activity, others will act as a brake. Policymakers need to nurture the sector and the ACC will continue to engage with them to ensure our members can provide much-needed capital as traditional sources of finance become less accessible.”