BDO-Investment managers underestimate impact of AIFM directive

Press release

Investment managers underestimate impact of AIFM directive

Investment managers are failing to perceive the risks associated with the European Union’s Alternative Investment Fund Manager’s (AIFM) directive, according to a new report by BDO LLP.  In a survey which asked investment managers in the UK to identify their top risks, only 3% of respondents cited the AIFM directive as a key risk for 2010 due to the implementation timescales.

AIFIM is likely to be a major distraction for firms in the run up to its implementation in 2012.    Analysts are  concerned that the regulations are going to be so stringent on alternative investment fund managers—more so than in the US and Asia—that fund managers in those countries will be less willing to provide access to European institutional investors.

“While the new directive is designed to assist EU passporting of alternative funds – including hedge funds, private equity and real estate funds – it could deter overseas managers from providing access to funds based in the Cayman Islands and Asia.” said Neil Fung-On, head of funds at BDO.

The survey found a number of other key findings including:

When asked about their growth prospects

Two-thirds of firms said that their strategy was focused on organic growth over the next 12 months. Over a quarter said that they planned to maintain their current financial position whilst fewer than 3% said they planned to contract.

Fewer than 3% of firms said they planned to grow by acquisition

“We believe that the continuing lack of liquidity amongst mid-market firms is restraining their ability to grow by acquisition. This is reinforced by the high level of respondents citing lack of investors as a key risk. Another, lesser factor is that whilst some firms may wish to expand their funds under management, they do not want the “baggage” that an acquisition brings.” said Fung-On.

Declining revenues have been the main impact of the crisis. Like many sectors, the main impact of the financial crisis over the last year has been a decline in revenues, with 48% of respondents citing this. 18% of respondents mentioned that a fall in their funds under management was the main impact and 15% stated increased regulation.

A lack of investors was seen as a key risk by 42% of respondents, followed by continuing market volatility. Many investment managers have failed to predict both the severe downturn and the rebound. As a result, numerous funds in 2009 underperformed the standard benchmarks this year.

Talent retention was rated by 10% of respondents as a key risk. 

The issue with talent has several dimensions with mid-tier firms being squeezed from several directions. Many portfolio managers’ compensation schemes have lost their value whilst the new 50% tax rate implemented to reduce the UK’s substantial deficit is making the UK a less attractive proposition to fleet-of-foot talent. And large firms are still reportedly to be heavily recruiting.

The good news is that fifty per cent of respondents said they are ready to deal with their top risk, with a further 47 per cent saying their plans are in progress.  Just three per cent of companies said they are not ready to deal with these challenges.

“For those organisations that have not yet put a plan in place for managing risk, we cannot emphasise enough how important it is to do this,” said Fung-On.  “Effective risk management strategies can spell the difference between winners and losers in ever-competitive financial markets, especially as 2010 will continue to present a challenging scenario for investment managers.”

Read the full survey

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Note to editors   

BDO LLP operates across the UK with some 3,000 partners and staff. BDO LLP is a UK limited liability partnership and a UK Member Firm of BDO International. BDO in Northern Ireland is a separate partnership operating under a licence agreement.  BDO International is a world-wide network of public accounting firms, called BDO Member Firms.  Each BDO Member Firm is an independent legal entity world-wide and no BDO Member Firm is responsible for the acts and omissions of another member. The network is coordinated by BDO Global Coordination B.V., incorporated in the Netherlands with its statutory seat in Eindhoven (trade register registration number 33205251) and with an office at Boulevard de la Woluwe 60, 1200 Brussels, Belgium, where the International Executive Office is located.

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Contacts: Joy Frascinella, PR Manager, Tel: 020 7893 3073, Email: joy.frascinella@bdo.co.uk