AIFM Directive: The end is nigh

The Directive has now passed its three main hurdles, with the ECON and Juri committees, and EU finance ministers largely approving the regulations. In yesterday's ministerial vote, only the UK and Czech Republic raised objections to the AIFM, though these will now be taken into account by the EU's Spanish presidency.

When the AIFM was first proposed back in April 2009, it featured draconian rules on leverage and sparked fears fund managers would move outside of the EU. While yesterday's vote may have been disappointing for the industry, it's worth remembering the AIFM is likely to be considerably less restrictive than it once was.

Private equity fund managers and lobbyists should not give up too soon, though. The saga of the AIFM continues, as the EU commission's approved version of the AIFM differs from that debated by the European parliament – with the latter being more favourable to both hedge funds and private equity investors. While the main themes of the legislation are now in place, there is still room to sway a few finer details in favour of private equity.

In the wake of the financial crisis, politicians were keen for the public to see them "doing something" about those at the highest levels of financial services. While such heavy-handedness might go down well in newspaper headlines, legislators should remember financial services companies ultimately serve the everyday voter.

For this reason, the rules governing custodian banks should be high on the list of priorities for both the industry and MEPs. Understandably, following the fallout of the Bernie Madoff scam, the EU has attempted to make custodian banks more accountable for the assets they take care of. However, the increased costs involved will no doubt be passed onto LPs and, ultimately, will come out of the pockets of middle income earners.

Disparities in the two versions of the Directive are due to be completed by the end of July. While this seems an ambitious deadline given the previous pace of the legislation, the industry can now begin to think about how it will adapt to continue to do business with these new rules in place. The end is in sight.

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