More than half (58 percent) of general partners are either ramping up their back office headcount, or at least thinking about doing so, in order to meet new reporting and regulatory obligations introduced by the Alternative Investment Fund Managers Directive (AIFMD) which took effect Monday.
Fund administrator and software provider Kneip surveyed 90 GPs from London, Paris and Luxembourg to assess how the EU private equity industry was faring with the directive, which creates a pan-EU marketing and regulatory regime for alternative asset managers.
“The new regulatory requirements mean that AIFMs need to ensure they have the right people in place to help them become compliant. For some managers this has involved expanding their team, whereas others are taking a different approach by outsourcing their entire back-office function to a third-party,” said Mario Mantrisi, chief strategy and research officer at KNEIP, in a statement.
“With a far-reaching piece of legislation such as the AIFMD, managers are naturally anxious about the costs associated with compliance and whether there will be a squeeze on their future profitability,” added Mantrisi.
The findings chime with a study conducted by investment services firm BNY Mellon, who surveyed 70 hedge funds from Europe, Asia, the US and Latin America. Respondents to BNY’s survey believe that initial AIFMD projects and one-off costs will range from between $300,000 and over $1 million per firm.
Both surveys underscore fund managers fear of not being able to comply with the directive. Indeed 27 percent of fund managers polled in Kneip’s survey see reputational damage (from failure to comply with the directive) as one of their biggest worries.
“AIFMs are also now considering how a failure to comply will affect their reputation among the investor community. In a tough fundraising environment managers simply cannot afford to have their image tarnished,” added Mantrisi.
The sentiment is similar to one made by Ernst & Young Luxembourg’s leader of private equity, Olivier Coekelbergs, who earlier this year said fundraising will be difficult for firms without the “AIFM label”.
Coekelbergs said that there is an implicit requirement for even small fund managers to be compliant with the directive if they want to raise money from institutional investors.