BPF response to HMT consultation on policy options for implementing the Alternative Investment Fund Managers Directive (AIFMD)

1st June 2012

The British Property Federation (BPF) is the voice of property in the UK, representing businesses owning, managing and investing in property. This includes a broad range of businesses comprising commercial property developers and owners, financial institutions, corporate and local private landlords and those professions that support the industry. Property businesses in our membership include both traditional property companies and corporate property groups, and real estate investment fund management organisations.

We welcome the opportunity to comment on the HM Treasury?s discussion paper on policy options for implementing the AIFMD, and set out below our key points. We have not provided detailed answers to specific questions, but generally support comments made by other property industry respondents such as Langham Hall. Requirements for sub-threshold AIFMs

Option 1 ? full application of Directive requirements to all smaller AIFMs We do not believe that full application of the Directive requirements to sub-threshold AIFMs would bring significant benefits to investors or to AIFMs, and we strongly recommend not implementing option 1 as set out in the discussion paper. It seems to us unnecessary gold plating which would not enhance the reputation of the UK?s financial services regime. The Directive already allows sub-threshold AIFMs to elect into the full requirements where that is commercially appropriate and it would be wrong for the UK to make this mandatory. On a practical level, the costs and administrative burden of complying with the full Directive requirements would be prohibitive for most new and/or small fund managers so would constitute an anti-competitive barrier to market entry for most small AIFMs, who would simply be unable to provide their services at a cost acceptable to investors. That would lead to a reduction in choice for investors, reduce competition in the market for AIFM services, and inhibit innovative practices. Indeed, the only stakeholders to benefit from option 1 would be larger AIFMs with the scale and resource to absorb the compliance costs associated the Directive, which would gain a competitive advantage over their smaller peers. Far from levelling the playing field between AIFMs, option 1 would introduce further market distortions.

Option 2 ? apply a lighter regime selectively, differentiating between AIFM The Directive?s UK implementation should encourage investment and innovation while maintaining appropriate levels of investor protection. Professional investors, who typically carry out their own detailed due diligence procedures and demand continuous monitoring of operational performance and risk assessments from their AIFMs, do not require the sort of protection afforded to retail investors.

We understand that professional investors are generally satisfied with the UK?s current investor protection rules and we cannot understand why HM Treasury proposes in paragraph 2.13 of the discussion paper to require small AIFMs to adopt any requirements of the Directive (however minimal) beyond the provision of certain information to comply with Directive registration purposes. Unless Government has any specific concerns about current levels of investor protection (and if they exist they should be explicitly stated), we believe that small AIFMs should not be subject to any incremental compliance requirements as a result of the Directive, which specifically provides for a very light level of regulation for small AIFMs. Accordingly, our preference would be for option 2 to apply in a way that imposes no new regulatory burdens on small AIFMs other than registration and periodic provision of certain high level information to the FSA, as mandated by the Directive. The existing system of FSA authorisation could remain in place for those small AIFMs which currently require authorisation (which would limit uncertainty caused by regulatory change), but those that do not need to be authorised under existing rules should not see their regulatory compliance burden increase. We are unconvinced that there needs to be any differentiation between different types of small AIFM other than a more onerous regime being imposed on AIFMs managing AIFs which are marketed to retail investors. Subject to that point, we urge the Government to remember, when implementing the AIFM Directive, that, in the area of investment fund management as in other parts of the economy, SMEs are a vital source of job creation, innovation, competition and growth, and should be supported.

We remain at your disposal over the coming weeks should you wish to discuss any of the issues we raise in this response. .

We would be delighted to hear your views on these points and other concerns you may have. Should you wish to discuss this further with us please contact Rob Short.