The Investment Property Forum's Mission is to enhance the understanding and efficiency of real estate as an investment. Our comments are therefore made in respect of the real estate sector.
We do not understand the proposed distinction between UCITS funds (which are to be excluded from scope unless they are MMFs) and AIFs. This distinction is likely to create distortions in our market and we think that both should be excluded from scope.
The rationale for excluding AIFs as well is as follows:
UCITS are already excluded from scope because they are subject to an appropriate and sufficiently robust prudential framework"(quote from the second limb of determining whether an entity is a shadow bank). The consultation paper specifically cites the EU UCITS directive (Directive 2009/65/EC) and states that it prescribes a robust set of requirements under which undertakings for collective investment in transferable securities, and their managers, operate. These are noted to include “requirements on the asset manager (initial capital, own funds and internal control requirements) and the managed funds (e.g. limits to leverage and concentration). Therefore, such funds do not pose the same level of risk to institutions in terms of credit and step-in/bail-out risk (e.g. due to reputational, franchise and other risks) as unregulated funds”.
UCITS served as the model for the Alternative Investment Fund Managers Directive (AIFMD), which came into effect in 2011, and covers the vast majority of real estate investment funds. Like UCITS funds, real estate and other AIFs within the scope of AIFMD have requirements on the asset manager including initial capital, own funds and internal control and reporting requirements and AIFs are subject to requirements related to leverage. Like UCITS funds, real estate and other AIFs do not pose the same level of risk to institutions in terms of credit and step-in/bail-out risk (e.g. due to reputational, franchise and other risks) as unregulated funds. Following this logic,real estate and other AIFs within the scope of AIFMD (other than MMFs) should be specifically excluded from the proposed scope of coverage of the Guidelines. Further, those AIFs specifically excluded from the scope of AIFMD due to their size, and the resultant lower level of risk they pose to the market, should also be outside the scope of these Guidelines."