Where does Europe stand on regulation of alternative investments?

EU co-legislators are having a hard time agreeing on regulation for alternative investment funds (AIFs). Following-up the G-20 commitments, the Commission’s proposal – published in April last year – did not manage to convince Member States and Parliament. After long negotiations – chaired by two different presidencies – the compromise issued by the Council late in August signals a consensus on a number of topics, such as the valuation and depositary functions. However, two important and complex topics – third country equivalence and private equity rules – are still under negotiation.

Suspense will reign until the very end. Not only is the future of alternative investments at stake, but also the whole asset management industry in Europe. In the end, the Commission may need to prepare a small revision of UCITS IV (the fourth iteration of legislation governing Undertakings for Collective Investment in Transferable Securities) based on the final outcome of the Alternative Investment Fund Managers Directive (AIFMD) negotiations. The reason for this regulatory action is to ensure financial stability and greater transparency in areas that have so far mostly gone unregulated. But also in the background, a widening pension gap and the need to generate enough returns to meet long-term liabilities worry policy-makers, industry and ultimately families.