Alternative Investment Management Association
04 August 2009
The Alternative Investment Management Association (AIMA) – the global hedge fund industry association – has warned that the European Commission’s draft directive on Alternative Investment Fund Managers could cost Europe’s pension fund industry up to €25 billion a year if implemented in its current form.
Andrew Baker, CEO of AIMA, said, “This is an estimated figure but it shows the potentially enormous impact that the directive could have on Europe’s pension funds and in the longer term, Europe’s pensioners.
European pension funds have been increasing their allocations to alternatives over recent years because of the good returns, lower correlations with traditional asset classes and low volatility they provide. With Europe facing strong demographic pressures as a result of an ageing population, pension funds will need strong growth and reliable returns over the coming years in order to meet future demand. If they suffer lower returns as a result of the directive, it’s not only Europe’s pensions funds but Europe’s pensioners of both today and tomorrow who will suffer.
It is because of consequences like this that there needs to be a proper full impact assessment conducted to determine whether the uncertain benefits of the directive justify the certainty of massive costs.
As it is currently drafted the directive will result in a major reduction in choice for Europe’s institutional investors and a big increase in costs and hence a significant reduction in returns. None of this is good for the competitiveness of the European financial services sector or indeed the economies of Europe as whole.”
AIMA produced the estimated figure based on the estimated assets under management of the European pension fund industry, the estimated allocation to alternative investments by European pension funds, and the estimated reduction in returns they could face if the directive went through in its current form.
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For media enquiries, please contact Christen Thomson, AIMA Director of Communications, on +44 (0)2078228380; email – firstname.lastname@example.org
Notes for Editors
The total size of assets under management by the European pension fund industry is $7 trillion or €5 trillion. We presume an approximate allocation to alternatives (hedge funds, private equity, real estate funds etc) of about 20% of that, ie €1 trillion. We estimate that the directive could reduce returns by 2.5% for that €1 trillion. 2.5% represents the approximate reduction in performance an investor could expect if because of the provisions of the directive (reduced choice through exclusion of non-EU funds and managers) they were forced to reallocate from alternatives to traditional asset classes like equities and bonds. 2.5% (at least) is also the approximate reduction in returns that alternative investments would deliver under the directive due to leverage restrictions and increased compliance costs. Therefore, regardless of whether European pension funds continued to allocate to alternatives or were forced to switch to traditional investments we think the reduction in returns they would face would be approximately 2.5% of €1 trillion, or €25 billion. This is an estimated figure but we hope it is illustrative of the scale of the consequences if the directive were to be passed in its current form.
As the only truly representative global hedge fund association, AIMA, the Alternative Investment Management Association, has more than 1,100 corporate members worldwide, based in 40 countries.
Members include leading hedge fund managers, fund of hedge funds managers, prime brokers, legal and accounting firms and fund administrators. They all benefit from AIMA’s active influence in policy development, its leadership in industry initiatives, including education and sound practice manuals and its excellent reputation with regulators worldwide.
AIMA is a dynamic organisation that reflects its members’ interests and provides them with a vibrant global network. AIMA is committed to developing industry skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the industry’s first and only specialised educational standard for alternative investment specialists. For further information, please visit AIMA’s website, www.aima.org.