AIFMD: How Independent Are Your Valuations?
![nicholas-hamilton nicholas-hamilton](/sites/default/files/styles/landscape_750_463/public/import/IMG/766/194766/nicholas-hamilton-580x358.jpg.webp?itok=j8oxjOCp)
Asset managers who this week submitted applications explaining how they are complying with the European Union's (EU) Alternative Investment Fund Managers Directive (AIFMD), and the industry at large, are eager to see what response they receive from the regulators and whether much-needed additional guidance will be forthcoming.
AIFMD, which is intended to create a harmonized, EU-wide framework for supervising risks posed by alternative investment fund managers and alternative investment funds, was published in the EU's Official Journal on July 1, 2011, transposed into UK law on July 22, 2013, and completed its transition period in EU member states this July 22. However, a number of questions about its implementation still remain, particularly regarding valuation procedures.
AIFMD requires asset managers to use independent valuations for the alternative funds they manage. They can do this in two ways: by employing the services of an external valuer or by putting in place procedures to ensure their internal valuations team is independent of the rest of the business.
At first glance, outsourcing the valuation function seems like an attractive path to compliance. However, requirements that the external valuer accepts unlimited liability for their valuations has put off pricing vendors and fund administrators who might otherwise be expected to take on the task.
In the absence of an external valuer, asset managers will have no choice but to go down the internal valuation route, creating procedures to segregate internal valuation teams from deal-making and front-office activity.
For Tier 1 institutions that already employ large valuation teams, this may not be a major overhead. However, many of those affected by AIFMD are smaller institutions and questions have been raised about how an asset manager that employs a team of 10, for example, can possibly demonstrate that internally generated valuations are independent.
It will take some time for regulators to sift through the mound of AIFMD applications they received this week. Once they have done so, many will be waiting to see what comments applicants receive, what practices are deemed acceptable and whether the regulations might be amended in some way.
Certainly, as things stand, you have to wonder whether the regulators have made the goal of independent valuations unattainable in many cases, by making it so unattractive for third parties to take on the role of external valuer.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@waterstechnology.com
More on Data Management
‘Feature, not a bug’: Bloomberg makes the case for Figi
Bloomberg created the Figi identifier, but ceded all its rights to the Object Management Group 10 years ago. Here, Bloomberg’s Richard Robinson and Steve Meizanis write to dispel what they believe to be misconceptions about Figi and the FDTA.
SS&C builds data mesh to unite acquired platforms
The vendor is using GenAI and APIs as part of the ongoing project.
Aussie asset managers struggle to meet ‘bank-like’ collateral, margin obligations
New margin and collateral requirements imposed by UMR and its regulator, Apra, are forcing buy-side firms to find tools to help.
Where have all the exchange platform providers gone?
The IMD Wrap: Running an exchange is a profitable business. The margins on market data sales alone can be staggering. And since every exchange needs a reliable and efficient exchange technology stack, Max asks why more vendors aren’t diving into this space.
Reading the bones: Citi, BNY, Morgan Stanley invest in AI, alt data, & private markets
Investment arms at large US banks are taken with emerging technologies such as generative AI, alternative and unstructured data, and private markets as they look to partner with, acquire, and invest in leading startups.
The costly sanctions risks hiding in your supply chain
In an age of geopolitical instability and rising fines, financial firms need to dig deep into the securities they invest in and the issuing company’s network of suppliers and associates.
JP Morgan’s goal of STP in loans materializes on Versana’s platform
The accomplishment highlights the budding digitization of private credit, though it’s still a long road ahead.
As data volumes explode, expect more outages
Waters Wrap: At least for those unprepared—though preparation is no easy task—says Anthony.