23/06/2010 Author: Andrew Baker

Comment: Andrew Baker

European policymakers are nearing the end game in their long drawn-out process to agree the Alternative Investment Fund Managers (AIFM) Directive. ‘Trilogue’ discussions are on-going between representatives of the European Parliament’s Econ (Economic and Monetary Affairs) Committee, the Presidency of the Council of the European Union and the European Commission (EC). On the negotiating table are the two differing versions of the draft Directive, the Parliamentary text and the Council one.

Attention is now focused firmly on the different negotiators. The Econ team is understood to comprise the chairwoman of the committee, Sharon Bowles, the rapporteur, Jean-Paul Gauzès, and the six shadow rapporteurs taken from the main political blocs in the Parliament. The Council is represented at the talks by officials from the Spanish government, the current President of the Council of the EU, and the Belgian government, which takes over the rotating presidency on 1 July 2010. The EC officials are there to assist the two sides in agreeing on a compromise text – although they would be expected to favour any wording that backs up the Commission’s original draft of the Directive.

Where there is already broad agreement between the texts, such as on registration and authorisation of EU managers, those areas are being incorporated immediately into a new compromise text drafted by the Commission.

This leaves the negotiating teams free to discuss solutions to areas of disagreement. But a measure of the distance between the teams was revealed when Gauzès expressed frustration following the first formal trilogue meeting, questioning whether European member states had even read the Parliament version. There have been other reports of a frosty atmosphere at the trilogues.

As those discussions continue, one question I am often asked is whether Aima prefers the Council or Parliament version of the Directive. Admittedly this may sound like a choice between two equally unpalatable alternatives. Yet while we have difficulty with some of the proposed measures in both texts, on balance we feel that the Council version is probably the more reasonable and workable of the two.

It is significant, for example, that the Council text takes a more realistic approach to the crucial issue of third (non-EU) countries. The text allows for a continuation of national private placement regimes, which would enable third-country managers to continue to market their funds in individual EU member states, subject to national discretion. And third-country managers will still be able to market to European investors without first having to comply with the totality of the Directive.

The Parliament text, on the other hand, contains three things – international passports; national private placement regimes with four unworkable conditions; and an investor ban for those jurisdictions – which do not meet the private placement conditions. What is more, the international passport would be impossible to put in place legally as it relies on the enforcement of EU rules by third-country supervisors. The US Securities and Exchange Commission (SEC) has already said the US would be unlikely to be able to comply with Parliament’s Directive, meaning that US managers could be locked out of the European market if this version prevails.

The questions over third-country permissions is only one of many seemingly intractable issues facing the negotiating teams, however. They must also find workable solutions relating to valuation, depositaries, scope, leverage, remuneration, delegation, capital requirements and short-selling. It is a major task which appears unlikely to be completed in time for Parliament’s 6 July 2010 Plenary session (still officially the target date for the full Parliament to vote on the Directive). The next available opportunity for MEPs to vote on a proposed compromise text would be in September 2010, at the first Plenary following the summer recess. Even that may be optimistic, and it would not be a surprise if this matter drags on towards the end of the year.

In the meantime, Aima will continue to work hard to secure the best possible result for the industry. We are undertaking this through our contacts in Council, the Commission, the Parliament and national governments as we devote all our efforts to seek to influence the outcome of the trilogues and secure the best possible result for the industry. There is still much to play for. It is not ‘game over’ by any means.

Andrew Baker is CEO of the Alternative Investment Management Association (Aima)