Alternative investment consultancy says ‘timing is critical for AIFMD applications’

London - 12 February 2013

HedgeStart, the London-based alternative investment consulting firm, says that fund managers must carefully consider the timing of their AIFMD application.

Assuming that the European Parliament does not object, the AIFMD will apply from 22 July 2013. There has been much debate over the calculation of assets under management, leverage, delegation and depositaries, but firms may have overlooked the important issue of timing. This issue affects those who are currently thinking of getting authorised as a fund manager and who then may become AIFMs.

According to HedgeStart, there is confusion between the regulators and the Commission. The FSA’s position is that if a firm has submitted an application to them before 22 July 2013 then once authorised (after 22 July) they will still come under the ‘transitional measures’ until 22 July 2014.

“The Commission seems to be saying that only those that are authorised before 22 July 2013 as investment managers will be able to use the transitional measures,” says Andy Wood, regulatory compliance partner, HedgeStart. “The potential problem for those who are not authorised before 22 July 2013 is that they will have to be compliant with the Directive as soon as they are authorised - post 22 July 2013. This means that their fund will also have to be completely compliant, with a depositary in place and so on from day one, as an AIFM cannot manage a fund that is not compliant.”

The second point on timing is: ‘When should an existing FSA authorised manager look to submit the application to vary their permissions to become an AIFM?’ The options range from 23 July 2013 (the first day allowed by the then FCA) and 21 July 2014. HedgeStart estimates that it will take three months to process each complete application, though it could take longer. All the forms will be completely new to the industry and the regulator so there may be a late deluge of applications. Although the Directive does not seek to regulate AIF, the AIFM must make sure that the fund is compliant as soon as it is authorised, as a non-compliant fund must be reported to the regulator and ultimately the AIFM would not be able to manage that fund. HedgeStart says that this will require careful coordination between the AIFM and the AIF to ensure continuity.

Wood: “My advice is, depending on the circumstances, it is probably ‘the earlier the better’ for AIFMD applications. Investors will want to know what will happen if they invest in your fund if you put your application in late. If for some reason it is disallowed, the investor might withdraw their money. If fund managers delay until July 2014, there is also every likelihood that there will be a backlog of firms submitting their application at that time. On the other hand, if at that time you have your application submitted and you are already authorised, you may well secure a competitive advantage.”

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