Funds Hub

Money managers under the microscope

Pension funds warn of €1.5 bln regulation cost

January 12, 2010

As the debate over the EU’s controversial and highly-politicized AIFM proposals on hedge funds and private equity rumbles on, there emerges more evidence that boosts opponents of the plans.

RTR28O54An article in Global Pensions highlights a letter to the European Parliament’s Committee on Economic and Monetary Affairs from Dutch pension funds and asset managers, saying the implementation of the AIFM in its current form could cost 1.5 bln euros annually.

The way this would happen, the letter argues, is that pension funds may change their asset allocation, switching out of all non-Ucits, non-EU assets to more traditional assets such as equities or fixed income.

There is potentially a large disparity in returns — 6.46 pct on equities and fixed income and 8.84 pct on non-EU, non-Ucits alternatives. When translated across pension funds’ assets, the loss in income is 1.47 bln euros.

To compensate, these pension funds say contributions would have to rise by at least 6 pct.

Critics of the directive, aware that sympathy among politicians and the general public for hedge fund managers is limited, have seized on warnings by pension funds as evidence that the AIFM proposals could hit the average man or woman on the street.

They are also likely to raise concerns that regulation could be forcing funds to change their investment decisions.

Of course, some hedge fund strategies have come onshore — a goal of some supporters of the directive – via Ucits vehicles, so would still be accessible.

But many types of funds, particularly the less liquid strategies in which pension funds would be happier than most to lock up their money for years, are not suited to the Ucits structure and could remain out of reach.

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