The European Commission published a draft Directive on Alternative Investment Fund Managers to establish a common regulatory and supervisory framework for all investment managers of funds promoted to investors in the European Union and not currently subject to European level regulation. Though the measure is directed at the hedge fund industry, the Directive would affect the operations of managers of all funds that are not registered as UCITS (Undertakings for Collective Investments in Transferable Securities), including private equity, real estate, infrastructure and venture capital funds.
The Directive is at an early stage of the legislative process and may be subject to significant change before it is adopted. Even in its current form it will not come into force before the end of 2011 and the proposals relating to the promotion of funds incorporated outside the EU will not come into force for a further three years after that. I expect there will intense lobbying from the financial services industry and the hedge fund industry.
The Directive is mainly driven by the European Commission’s aim to get control over what it perceives as systemic risks in unregulated fund markets. There is a set of regulations focused on managers domiciled in the EU and a second set on funds marketed in the EU.