Please show me your passport
As a consequence of the financial crisis, the asset management industry faces a wave of regulation, which will bring major changes. The Alternative Investment Fund Managers Directive (AIFMD) is one part of this regulatory puzzle. The impact of the AIFMD on hedge funds was the topic of a conference organised by ALFI, the association of the Luxembourg fund industry. ALFI chairman Marc Saluzzi spoke about the challenges the local fund industry faces.
At the end of 2011, Luxembourg’s alternative fund management industry had 180 billion euro of assets under management, alternatives UCITS (Undertakings for Collective Investment in Transferable Securities) included. This number does not include the offshore funds administered but not domiciled in Luxembourg and the assets invested through unregulated private equity and real estate funds. According to Marc Saluzzi, the chairman of ALFI, this represents more or less 9% of the assets managed by Luxembourg funds and a little over 4% of the global alternatives assets managed around the world.
“If we focus on the three main asset classes usually included in alternatives, our competitive position varies a lot from one asset class to the next. More specifically, in the hedge and fund of hedge funds space, Luxembourg is still a challenger to the Cayman Islands, which concentrate 44% of the global hedge fund management industry versus 4% for Luxembourg, in terms of number of funds,” Mr Saluzzi said.
At the same time, the assets under management of Luxembourg-domiciled hedge funds and funds of hedge funds reached 105 billion euros by the end of December 2011. This number includes alternative UCITS and excludes hedge funds and funds of hedge funds not domiciled in Luxembourg.
Repeating the success story
Marc Saluzzi added that six of the top ten global hedge fund managers are exposed in one way or another to Luxembourg. He admits that if Luxembourg wants to meet alternative fund managers’ expectations and develop alternatives as the second pillar of its investment fund centre, the industry has to become ambitious.
“On behalf of ALFI, Oliver Wyman conducted a study on alternative fund domiciles and their relative competitiveness. They have concluded that if we want to capture a significant market share of the alternative assets managed around the world, we will have to work hard and go beyond a pragmatic and timely AIFMD transposition”.
The very dynamic association of the Luxembourg fund industry has reorganised its promotional activities to specifically target all the key players in the business, from service providers to fund managers and institutional investors. Three weeks ago, ALFI had its first hedge fund event in New York. Hedge fund managers and US lawyers were in attendance and were highly interested by the ALFI alternative pack.
The AIFMD will heavily affect the non-UCITS sector in Luxembourg. This directive aims at providing a harmonised regulatory and supervised framework for managers of Alternative Investment Funds (AIFs) within the European Union. It allows the marketing of these funds to professional investors via a passport throughout Europe. Marc Saluzzi is confident that Luxembourg can repeat the success story of UCITS, the only type of fund that has achieved international recognition and is a source of inspiration for many countries outside of Europe.
“Another key challenge for us will be to make the passport work for fund managers and their AIFs. AIFM provides for this passport and we should leverage this feature for the benefit of the alternative fund management industry. If we can achieve this, AIF will become another global brand associated with the Luxembourg fund centre”.
Marc Saluzzi closed his speech by saying that “we will have to convince alternative fund managers and institutional investors that regulated products can work for them. From that point of view, institutional investors should become our prime focus. Just as distributors in the UCITS space, they will be the ones who influence how and where global fund managers will deploy their business”. CW