If implemented in its present form, the European Union's (EU) Alternative Investment Fund Managers (AIFM) directive will seriously restrict pension funds' ability to make the most of their global investments, warns the UK's Investment Management Association (IMA).

The IMA believes the directive would restrict pension funds' alternative investments in emerging markets, which look set to flourish as the world emerges from the
economic downturn.

Although the IMA has long been waiting for a directive of this nature for a long time, according to Jarkko Syyrilä, director of international relations at the IMA, the problems it contains in its current form far outweigh the positives.

The main issue for UK pension funds is that the AIFM directive will create a pan-European passport which will only allow investment in alternatives through EU-domiciled funds. After three years, it will then become illegal to invest in non-AIFMD regulated funds.

If political approval on the European Commission's proposal is reached by the end of this year, the directive could come into force by 2011. Prohibiting use of managers outside the EU's jurisdiction will then become applicable in 2014, giving investors a three year period to change their alternative managers if need be.

Syyrilä claimed this change would severely harm schemes' chances of getting full value from emerging market opportunities.

"How will you run your China portfolio?" he asked. "We have to have local operators working on these businesses. The proposal does not really recognise how asset management works on a global basis. Emerging markets are clearly the ones at stake - it is to the benefit of pension funds that they invest globally," Syyrilä added.

The IMA will lobby for changes to the directive and its priority will be to allow for the continuation of national private placement regimes, which is "clearly something that works well, for pension funds," said Syyrilä.

"There is no reason for the EU to intervene," he added, calling the directive a politically-fuelled measure which needs to be further debated.

Syyrilä said the IMA is anticipating a redrafting of the directive, which is due over autumn 2009 under a new Swedish EU presidency. He claimed that the French and German equivalents of the IMA are also "as upset as we are" at the wide range of funds caught in the AIFM Directive net, and hopes that other associations will make their feelings public, so that a "real public debate of how to redraft" can be staged.

The proposed directive was put together by the EU as part of its response to the financial crisis, as set out in the Communication on Driving European Recovery.
Its aim, so Brussels claims, is to create a comprehensive and effective regulatory and supervisory framework for alternative fund management across the EU.

Alternative managers, including those running hedge funds and private equity funds, were thought to be in control of around €2 trillion worth of assets at the end of 2008.

The proposed directive, which has caused much controversy among financial centres across Europe, is the first attempt by any government or jurisdiction to create a comprehensive framework for the regulation of the alternative fund industry.

Share Story: