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12 November 2009

ECON hearing and workshop on AIFM: the debate is still highly divided

Speakers from pension funds, industry, supervisors and the trade union movement gave their views and responded to MEPs’ questions. One key issue was the treatment of third-country funds and the depositaries.

ECON held a hearing on the Alternative Investment Fund Managers Directive (AIFMD) on 10 November. Speakers from pension funds, industry, supervisors and the trade union movement gave their views and responded to MEPs’ questions. Speakers focused on the key issues of the AIFMD including treatment of third-country funds and managers and the duties and liabilities of the depositary. The debate is still highly divided and the rapporteur Jean Paul Gauzes (EPP/FR) made it clear that the Directive is needed. He will make public his opinion report on 25 November.

Eddy Wymeersch, Chairman of CESR, pointed out that the AIFMD has to be clear in its objectives and that dealing with systemic risk is the main objective behind the Directive. He said, however, that the scope of the directive is too broad and that there is a real need to differentiate between different types of funds.


Robin Oliver, Head of EMEA Compliance, State Street Bank, made the following remarks concerning the current hot issues of the AIFMD:


·         The deposits liability imposition - as currently proposed in the AIFMD - is a “killer business model” in the sense that it will block the aces to investments.


·         Delegation is essential to the industry. It needs to delegate on depositary function and valuation in order to reduce costs. Delegation should not be limited to European market delegation.


·         The private placement regime should be kept as it is now, since it will be necessary and useful for investors to access funds all around the world. Imposing it might create a barrier for the investor.


Leverage has been one of the polemic issues of the AIFMD. The great majority of the industry warnings are that the introduction of a leverage cap would involve restrictions to AIFM business growth. However, Kris Douma from the Dutch Pension Fund Association asked the committee to introduce leverage cap as it would guarantee a level playing field. He also asked the ECON committee to leave outside the scope of the Directive the alternative investment vehicles used by some small pension funds to pool their assets since this would seriously harm them.


Jean Paul Gauzes (FR/EPP), during Q&As, reminded those who had just discussed the Swedish presidency proposal that the role of the EP should be on an equal footing with the Council, and that the Directive would be passed through the co-decision process.


Syed Kamal (UK/ECR) asked what evidence there was, if any, of market abuse in the hedge fund industry. Concerning the depositary function, he asked whether the European market is able to provide an institution capable of taking on the liabilities of a depository.


Olle Schmidt (SE/ ALDE) said that no one wants more regulation if it is bad regulation. In his opinion the AIFMD as drafted constitutes bad regulation.


The hearing was followed by an academic workshop at which academics presented their views on both the AIFMD and the discussion at the morning hearing. It is important to note that all academics agreed that the hedge fund industry imposed systemic risk to the economy.  Lord John Eatwell, Professor at Queens College, University of Cambridge and Judge Business School, went further saying hedge funds were also part of the crisis as they were selling credit default swaps. He also clarified that systemic risk does not always mean a big fund or bank. Small business doing the same and investing in the same products at the same time, can also create systemic risk to the economy, the solution being to supervise the system as a whole and not just the big entities.



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