EUROPE - The proposed Alternative Investment Fund Managers Directive is in some respects "misguided" and would reduce investment returns and increase risk, the UK's National Association of Pension Funds (NAPF) has claimed.
In a letter released today to European commissioner for internal market and services Charlie McCreevy, the trade body said it welcomed certain aspects of the directive, such as the "EU passport" needed by alternative investment fund managers to market their products to European investors.
But NAPF chief executive Joanne Segars said the wide scope of the draft legislation failed to differentiate within the alternative investment space and to take into account the due diligence process undertaken by sophisticated investors, such as pension funds.
The NAPF said the current draft of the directive would reduce the investment options available to investors, which would in turn reduce returns and increase risks.
It said: "For long term investors like pension schemes, even a relatively small reduction investment returns, compounded over a number of years, will have a dramatic impact on the affordability of pensions."
It added fund providers' costs would also increase, as a result of the introduction of the directive. "This will inevitably be passed back, in whole or in part, to end-investors," it added.
The letter also said the directive represented a "flawed model of regulation", as it appeared to be based on a model of retail regulation - the UCITS directives.
It added pension schemes directly or indirectly undertook their own due diligence and drew information from investment managers, in contrast to the model envisaged by the directive which would require managers to provide generic information to investors.
"We would oppose anything that discouraged due diligence by allowing professional investors to place an unjustified reliance on the supervisory and regulatory authorities," the NAPF concluded.
This initiative came after a group of Dutch pension funds and institutional investors - including APG, the Blueskygroup, MN Services and PGGM - wrote to McCreevy expressing similar concerns on the effects of the draft directive (Global Pensions, September 3, 2009).
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The Pensions Regulator will consider if schemes should be required to have professional trustees and assess the case for greater regulation of administrators and system providers, PP can reveal.
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