ALFI statement to upcoming trilogue negotiations concerning the AIFMD review

On 14 February 2023, Association of the Luxembourg Fund Industry (ALFI) commented on upcoming trilogue negotiations concerning the Alternative Investment Fund Managers Directive (AIFMD) review.
The European Parliament published a decision to enter into inter-institutional negotiations on the AIFMD review on 13 February 2023. ALFI recalls that the AIFMD is a global European success story that is to be preserved and further developed. As voiced at many occasions, after the European Commission released its consultation in September 2020 any amendments should be targeted to satisfy demonstrable needs of improvement. The nature of the directive as a manager framework should not be put into question, and any alignment of the Undertakings for Collective Investment in Transferable Securities Directive (UCITSD) with the AIFMD should be strictly limited to situations where a misalignment could not be justified or would even cause issues to the industry and/or investors.
Concerning delegation, its merits are not called into question and have been confirmed by the targeted approach of the Commission in its proposal for a directive, as well as by the position of the Council in June 2022. However, there are divergent views on how regulators should be enabled to have a clear picture on delegation arrangements concluded by AIFMs and UCITS management companies. ALFI believes that this need could be addressed by expanding the information required as per the managers’ authorisation application file, supplemented by an obligation to notify material changes to the national competent authority (NCA).
Liquidity Management Tools (LMTs) are undoubtedly needed to overcome situations of liquidity stress under normal or deteriorated financial market conditions. However, it is unusual to focus only on one or two tools as suggested by the Commission. Fund managers normally provide a toolkit of LMTs and then choose the appropriate one for each circumstance. Given that the characteristics and use of LMTs are diverse and stress situations vary in terms of length or intensity, a maximum of liberty should be granted to the AIFM or UCITS management company.
The introduction of rules on loan-originating AIFs is contrary to the nature of the AIFMD that should remain a directive governing managers and not directly the products. Moreover, ALFI is not aware of facts evidencing the need to introduce restrictive rules and specific requirements vis-à-vis loan originating funds in the AIFMD. In particular, restricting the possibility for debt funds to qualify as open-ended funds would be detrimental to this successful sector of the industry contributing positively to the financing of the real economy. The important business of microfinance/impact/sustainable funds would also be at risk. Imposing a cap on leverage would limit the ability to hedge risks via derivatives. A qualitative limit, based on the AIFM’s assessment and responsibility, would better address the various risks at stake.
Concentrated markets that lack a competitive supply of depositary services, competent authorities should be able to allow, subject to specified conditions and further to a case-by-case assessment, depositary services to be procured in other Member States. However, such an exemption from the general rule should, in ALFI’s opinion, in no way indirectly lead to the introduction of a depositary passport. A passport for depositaries would add new risks of overlapping existing rules to be complied with by industry players which are already subject to a high level of regulatory scrutiny. The depositary in the home country is a stable and valuable point of contact for the regulator, who helps the proper implementation of the AIFMD’s requirements and thereby protects investors.
Finally, allowing the marketing of AIFs to semi-professional investors, provided certain conditions are met, would meet an existing demand. While it is well understood that retail investors need enhanced protection, excluding sophisticated investors from potentially high-performing products is not targeted towards a true Capital Markets Union. Similar concepts already available in some Member States work well, and MiFID provides safeguards in terms of appropriateness and suitability.