AIFMD - a simple picture of the next "Big Thing"?

Well if the number of calls I have had from recruiters and fellow change agents is anything to go by AIFMD is sizzling hot!!! For those not au fait with the term this is the new European Alternative Investment Fund Management Directive aimed at bringing all those rogue investors into line, well that is what the regulators would have you believe. It is over 100 "articles" prescribing how any fund that is not already (heavily) regulated under UCITS (Undertakings for Collective Investment in Transferable Securities) will measured, run and reported.

In practice this is gathering in many, many low risk funds and their managers - probably not what was intended, but what is happening. The wording says if a fund is not UCITS then it is covered by AIFMD!!!

The meaningful detail was published just before Christmas so it is maybe not surprising that many companies are now starting to move.

I took an afternoon to read the detail last week. I could say it is mind-numbing, but that would be unkind to general anaesthetics. That said with a little thought and mental organisation it becomes more understandable and more manageable.

My first move was to just list out all the article titles under their section headings and managed to get that list down to two sides of A4. The light started dawning at that stage and I could see how the pieces could be grouped together.

The diagram at the front of this blog is my current visualisation. I think it needs a bit more work, but is pretty close. So let me explain it and see if it is of any help to anyone else. I will keep the explanation quite high level so don't be afraid to read on.

I see the successful implementation of AIFMD is built on four pieces of work and surrounding intent for transparent communication. The four pieces are:-

Business Model: Sort out the new business model you will need as a fund manager and for your funds, ie who will do what for whom and be sure that it meets the new rules. I suggest doing this top down with principles and high level target operating models. This will by necessity include Depositaries - see later.

Business Processes: Then look at the rules about how you will do business. if you are familiar with UCITS then this will not be confusing. It is about how one remunerates people, manages risk and liquidity, resolves conflicts of interest etc.

Technical Stuff: This is the stuff that specifies how assets are valued, the calculations for leverage etc. It is a bit geeky and as the title suggest more technical.

The Depositary: This is now a must have role with alternative funds and has a number of new an onerous obligations. The key is to ensure that your existing Depositary can and will step up, or if you need one then you find one in good time.

As I said there is then a load of stuff about who has to report what and how to whom.


When you look at it like that it is much simpler than waving a thick wad of papers in front of a confused investment manager.

I wonder if anyone else sees it this way?? If you think I have got it wrong please do tell me. I am sure the detailed implementation will make it more complicated, but I like to start with the simplest model possible and add just enough complexity rather than start complicated from which there is only one way to go and that is not simplification.