Private markets strategies and greater distribution are within reach for fund managers as the AIFM model matures, says Kavitha Ramachandran, Senior Manager, Business Development & Client Management, based in Luxembourg.
It is a full six years since the Alternative Investment Fund Managers Directive (AIFMD) was brought into being. With the EU marketing passport, the AIFMD echoed the cross-border distribution of the Undertakings for Collective Investment in Transferable Securities (UCITS) for professional investors in alternative investment funds. There is no doubt that the AIFMD has helped to grow the alternatives business. In Luxembourg alone, reports indicate increases of over 20% from previous years. The growth was boosted through further specialisation, with the establishment of innovative new products, such as the Reserved Alternative Investment Fund (RAIF) and targeted offerings at niche groups of investors, be they “qualified investors”, including pension funds, insurance companies or family offices.
Along with the rise in the number of alternative investment funds has been growth in the ManCo industry, with a model for this now firmly established in the form of AIFMs. The third-party AIFM model has proven popular with smaller to mid-sized fund managers looking for a cost-effective, outsourced solution to compliance and distribution which allows them to focus on alpha generation. Many have started to ask AIFMs to add further value through select services, expand their skills set and get involved in the sales process.
This third-party AIFM model has proven its success in UK and European alternative fund distribution for over six years now. In short, it’s a game changer. What is more, as a result of its maturity, it has been able to withstand the vagaries that have come with Brexit. Regardless of which way the penny drops come the deadline of 31 October, opportunities present themselves to AIFMs, precisely because the model is now so established. Fund managers, uncertain of their future for so long now, will hopefully finally know where to domicile themselves to best avail themselves of the marketing passport when it comes to distribution of their funds. Those AIFMs with a presence in multiple jurisdictions will be well placed to serve them, regardless of their domicile.
Growth into Asia
It would appear that the next growth area for European fund cross-border distribution might well be Asia. The markets of Hong Kong, Singapore and even Japan are starting to gain traction. In a November 2018 report by Deloitte, Navigating Asia: Investment Fund Distribution – Challenges and Opportunities, authors Lou Kiesch and Mark Evans examine distribution possibilities from Europe into Asia and vice versa, various Asian fund passport initiatives and the delegation of Asian securities portfolio management.
They state: “The European Securities and Markets Authority’s 2016 advice to the European Parliament, the Council and the Commission on the application of the AIFMD passport to non-EU AIFMs and AIFs found no significant obstacles regarding investor protection, competition, market disruption or the monitoring of systemic risk.”
Of course China has always been regarded as a huge growth market too but what about India? This massive sub-continent with its sophisticated financial services industry might just be a further market to consider.
Maitland Luxembourg S.A. is licensed as Professional of the Financial Sector (“PSF”) and is regulated by the Commission de Surveillance du Secteur Financier (CSSF) with number B13583