Fund Domiciles

AIFM: Risk under estimated says study

Posted: 02 February 2010

In the run up to its implementation in 2012, a small portion of investment managers see risks associated with the European Union's Alternative Investment Fund Manager's (AIFM) directive, says a new report released by BDO LLP.

The survey asked investment mangers in the UK to identify their top risks, with 3% citing the AIFM directive as a key risk for 2010 as a result of the implementation timescales.

Some analysts are concerned that the regulations will be stringent on alternative investment fund managers, and that fund managers in US and Asia will be less willing to provide access to European institutional investors.

"While the new directive is designed to assist EU passporting of alternative funds-including hedge funds, private equity and real estate funds-it could deter overseas managers from providing access to funds based in the Cayman Islands and Asia." said Neil Fung-On, head of funds at BDO LLP.

But even though AIFM will introduce more regulation in Europe, it will allow more access to broader distribution channels.

The survey also found that about two-thirds of firms said that they'll be focusing on organic growth over the next 12 months. More than 25% said they planned to maintain their current financial position, and less than 3% said they planned to contract. The survey also revealed that less than 3% of firms said they planned to grow by acquisition.

"We believe that the continuing lack of liquidity amongst mid-market firms is restraining their ability to grow by acquisition. This is reinforced by the high level of respondents citing lack of investors as a key risk. Another, lesser factor is that whilst some firms may wish to expand their funds under management, they do not want the "baggage" that an acquisition brings." said Fung-On.

Nearly half of the respondents cited the financial crisis as a direct impact on declining revenues over the past 18 months. 18% of the respondent mentioned that a fall in funds under management was the main impact and 15% said increased regulation was the reason for declining revenues.

However, it was also found that the lack of investors presented itself as a huge risk for nearly half of all respondents, with 42% of respondents stating this.

Despite the projected risks in the coming year, 50% of respondents said that they are prepared to deal with their top risk, and 47% mentioned their plans are in progress. A meager 3% said they aren't prepared to deal with these challenges.

"For those organisations that have not yet put a plan in place for managing risk, we cannot emphasise enough how important it is to do this," commented Fung-On. "Effective risk management strategies can spell the difference between winners and losers in ever-competitive financial markets, especially as 2010 will continue to present a challenging scenario for investment managers."

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