EUROPE - The European Union Alternative Investment Fund Managers directive could cost Europe's pension fund industry up to €25bn (US$36bn) a year if implemented in its current form, the Alternative Investment Management Association (AIMA) claimed.
The trade body said despite being an estimate, the figure showed "the potentially enormous impact" the directive could have on pension funds.
AIMA produced the estimated figure based on the estimated assets under management of the European pension fund industry, the estimated allocation to alternative investments by European pension funds, and the estimated reduction in returns they could face if the directive went through in its current form.
AIMA chief executive Andrew Baker said: "With Europe facing strong demographic pressures as a result of an ageing population, pension funds will need strong growth and reliable returns over the coming years in order to meet future demand.
"If they suffer lower returns as a result of the directive, it's not only Europe's pension funds but Europe's pensioners of both today and tomorrow who will suffer."
The EU directive proposal - originally released in April - would require managers marketing alternative investments to EU pension funds to hold an ‘EU passport' - a certification that the fund complies with the new EU rules. In addition, it would cap the leverage used by alternative fund managers.
Baker called for a "proper full impact assessment" to determine whether the benefits targeted through the directive would offset the costs.
However, in response to a Freedom of Information request from think tank Open Europe, the UK government confirmed there will be no impact assessment for the proposal due to the "foreshortened time scale on which the directive is being negotiated".
Open Europe research director Mats Persson commented: "This is quite extraordinary given the impact the directive will have both on the financial sector and the wider economy.
"We support more transparency for this industry, but we believe the directive is mis-targeted, poorly drafted, inconsistent with previous EU law and quite protectionist."
Several industry figures, including UK City minister Lord Myners had warned about potential cost for institutional investors.
Others had also pointed out the directive could increase the investment risk incurred by pension funds.
EM Applications - an investment risk consultancy - managing director Peter Ainsworth said: "What is especially frustrating is that the reduction in choice will be counterproductive, increasing risk for investors rather than reducing it.
"This is the consequence of the EU confusing leverage and risk and not taking account of the most basic rule of investing - that diversification reduces risk. Institutions invest in many funds so limiting the range of opportunities will increase their risk."
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