From IFC Review

The introduction of the Alternative Investment Fund Managers Directive (AIFMD) could add fuel to the fire of the recent trend for investment trusts to be domiciled offshore, reports the FT Adviser.

Under the AIFMD, which came into force in the UK on July 22, alternative investment fund managers will have to register with their local regulators to manage or market some of their vehicles – and certain trusts fall under the rules.

However, the AIFMD does not have the same obligations for all countries. EU alternative investment funds must follow a certain set of rules, while ‘third countries’ have reduced obligations.

This means investment trusts that are listed on the London Stock Exchange but domiciled in certain offshore locations will have minimal additional AIFMD reporting requirements – less than if they were domiciled onshore.

David Barron, director of investment trusts and product strategy at Miton Group, said this allowed funds domiciled offshore to “veil themselves” from the legislation.

This means offshore jurisdictions such as Guernsey and Jersey, which were already thriving as domiciles for investment trusts, have gained a further advantage from AIFMD.

Nathan Brown, director of corporate broking at Numis Securities, said: “Guernsey is doing well from the AIFMD. They can be fully compliant, but don’t have to really engage with the legislation.”

The relaxed restrictions followed concerns when AIFMD was being drafted that it would lead to accusations of a ‘fortress Europe’ approach, so a flexible set of rules for non-Europeans were added.

The full effects of the new legislation may take some time to appear since many asset managers have not received authorisation.

According to a BNY Mellon and FTI Consulting survey of firms in Europe, only two-fifths of asset managers had received authorisation and almost a fifth did not have the required AIFMD structure in place by July 22.

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