Last week (22 October 2020), the European Commission launched a public consultation, seeking the views of stakeholders on how to ensure a more effective and efficient functioning of the EU alternative investment funds market as part of the overall financial system. The consultation is part of an ongoing review of the alternative investment fund managers directive.

Collective investment funds

In the EU, alternative investment funds (AIFs) are collective investment funds that are not covered by the directive on undertakings for collective investment in transferable securities (UCITS). AIFs vary in terms of their investment strategies, markets, asset types and legal forms.  Alternative investment fund managers manage the AIFs, which are often established for saving- or income-generating purposes while supporting broader economic activity. The AIFs include venture capital and private equity funds, real estate funds, hedge funds and fund of funds.

The alternative investment fund managers directive (AIFMD) was adopted following the global financial crisis, which exposed certain weaknesses in global financial markets and their regulatory regimes. As a result, G20 leaders agreed on the need for greater regulation of the financial industry to minimise the risk and magnitude of future crises. This also encompassed the alternative investment management sector, requiring more coordinated supervisory oversight and increased investor transparency.

The AIFMD seeks to achieve a coherent supervisory approach to the risks of the financial system, to provide high-level investor protection and to facilitate EU alternative investment funds’ market integration. Alternative investment fund managers are required to take measures to manage risks and ensure the required transparency regarding the activities of their managed alternative investment funds. At the same time, they need to be able to manage and market the funds to professional investors across the EU with a single authorisation.

Possible amendments

The Commission is conducting a review of the AIFMD, which may result in amendments to the directive being proposed. Drawing on the experience with the AIFMD, the review assessed the directive’s impact on investors, alternative investment funds, and alternative investment fund managers in EU and non-EU countries to establish the degree to which the AIFMD’s objectives have been achieved. On 10 June 2020, the Commission submitted its report to the European Parliament and the Council on the scope and the application of the AIFMD.  The report concluded that while the AIFMD has contributed to the creation of the EU alternative investment funds market, provided a high-level of protection for investors, and facilitated monitoring of risks to financial stability, there are a number of areas where the legislation could be improved. 

The COVID-19 crisis has given the European Commission’s ongoing efforts to develop the EU’s capital markets increased urgency. The launch of this consultation, which will run until 29 January 2021, is another step forward towards completing the capital markets union (CMU).

Read more about investment funds and take part in the consultation