07/12/2011 Author: Will Wainewright

Best of Lux

Regulation, performance and the eurozone crisis were central themes at the ALFI European Alternative Investment Fund conference two weeks ago. HFMWeek joined delegates in the Grand Duchy to take the pulse of the industry as it emerged from a challenging few months

A combination of political and economic paralysis, weak industry performance and a dense lingering fog outside the auditorium made for chilly conditions at the hedge fund sector’s last major European gathering of the year in Luxembourg. Nearly 500 delegates attended the two-day event, organised by the country’s fund industry association, which also focused on the private equity and real estate sectors. After a difficult year for most, there was much to talk about.

Regulation
The potential impact of the Alternative Investment Fund Managers Directive (AIFMD) on the hedge fund sector has dominated conference programmes in the industry for two years now, and in Luxembourg it was no exception. Delegates were treated to three separate discussions of the mooted regulation after Esma’s publication of its final implementation guidance the previous week. Some delegates, understandably, felt it was overkill.

Some interesting conclusions did emerge, however. The persistent uncertainty surrounding depository liability provisions was identified as the main unresolved cause for concern, with Jiri Krol, Aima’s policy director, saying it had the potential to “make or break” the success of the Directive. While there was praise for the pace at which Esma conducted its work from Alex Nightingale of BlackRock, who described it as a “tremendous effort”, the discussion repeatedly returned to the shortcomings of the process. 

The administration industry
The conference shone a useful light on the current state of the administration sector. Most of the delegates were service providers of some kind, with the admin units of State Street, UBS and HSBC exhibiting in the main hall. Hedge fund managers were thin on the ground, but delegates told HFMWeek that the conference was a useful opportunity to meet other providers and set up networks which could produce future client wins.

The talk among admins was of a small uptick in launch activity during the last quarter, but all admitted that any activity was on a small scale. The volatile market conditions and difficulties faced by capital-raisers were blamed, painting a picture supported by HFMWeek’s recent survey of the single manager administration market, which showed a marginal rise in assets over the last six months. 

Luxembourg
Aside from the panel discussions and networking opportunities, a key aim of the conference was to highlight Luxembourg’s advantages as a hedge fund hub. Its strength in the Ucits market and extensive service provider offering all work in its favour, although a report released during the conference revealed a relative paucity of hedge funds compared to other jurisdictions (see box).

A speech by Luc Frieden, Luxembourg’s finance minister, sought to reassure delegates of the jurisdiction’s status as a safe place to operate a hedge fund. “Banks and funds here have overcome the [financial] crisis quite well,” he said. “In the current difficult time, we will make sure that all financial institutions will be on a safe footing.”

Eurozone crisis
The other part of Frieden’s speech addressed, in stern and uncompromising fashion, the sovereign debt problems currently suffocating much of the eurozone. The continent’s economic problems were discussed at length by delegates during the two days, most agreeing that the corrosive impact on business confidence was the most damaging consequence for the hedge fund industry. It meant decisions were delayed and fewer risks taken as the industry awaited a final outcome, despite the seemingly interminable nature of the crisis.