AIMA Singapore: Draft European Directive on Alternative Investment Fund Managers could significantly impact Singapore’s hedge funds
From Opalesque, some potentially bad news for hedge funds in Singapore. The Singapore Branch of the Alternative Investment Management Association (“AIMA”), the industry trade association for hedge funds, warns that the European Commission’s draft directive on Alternative Investment Fund Managers will make it unduly difficult for Singapore based alternative investment managers to access the European market. The directive will also complicate the allocation of a global portfolio’s fund management, making the delegation from Europe to Asia near impossible.
Under the directive, managers based outside of Europe will need to obtain a special marketing passport before being granted access to the European market. However, the passport will not be available for three years after the introduction of the directive. Significant obstacles to acquiring the passport will also be imposed; regulatory equivalence between Europe and the applicant’s home jurisdiction will need to be established, key criteria include comparable prudential legislation, equal access to markets, and a tax information-sharing agreement. Capital requirements and leverage restrictions will also need to be implemented. Local regulations will need to be effectively adjusted in manners outside current discussion in international regulatory forums.
The proposed directive will apply to all types of “non-UCITS funds”, including private equity, real estate, infrastructure, and hedge funds.
Michael Coleman, the Chairman of the Singapore branch of AIMA, commented: “The effect, if not the intent, of this directive is highly protectionist. If it is left unchanged it will have a major negative impact on the hedge fund industry in Singapore, which has a large European component to its investor base. Also, it will have negative consequences for European investors who will find their choice of investment opportunities severely restricted. ”
This will have an adverse impact on Singaporean investors with European funds or managers. Due to the restrictions imposed, compliance costs will increase and returns will lessen. European investors will also suffer from the higher costs passed on to them and face a diminished investment universe.