CP12/32: Implementation of the Alternative ... - BVCA admin

Annex 1
November 2012
CP12/32
Implementation of the Alternative Investment Fund Managers Directive
32. We propose not to offer firms the option to use the guarantee allowed by Article 9(6) of
the Directive because we do not expect many firms to use the guarantee. This is because
of the likely small amount of the capital requirement that it can cover (see Table 5) and
the costs arising from entering into an appropriate guarantee arrangement. If firms respond
that they would want to use one, we will revisit the proposal and update the CBA.
33. In addition to the costs discussed in the sub-sections below, some respondents to the survey
noted that they will incur one-off costs in form of professional or legal fees of around
£10,000-£20,000.
Fund managers including those also authorised for MiFID business
34. We also analysed the impact on capital requirements for fund managers, which include,
firstly, fund managers subject to the prudential rules in IPRU(INV) Chapter 5 and, secondly,
those that undertake MiFID business and are BIPRU limited licence firms. The current
capital requirements are quite high, as they were originally designed for banks and these
firms generally report significant own funds and liquid capital which are more than
sufficient to meet the AIFMD requirements.
35. The most relevant new requirement will be for PII or additional own funds to meet the
professional negligence requirement of Article 9(7), which could be significant if the AIFs
managed are substantial. We have assumed that, firstly, firms will use additional own funds
instead of PII to meet this requirement; and, secondly, we will not let a firm use the lower
percentage for the calculation of the requirement. 11 The total capital shortfall due to this
requirement is approximately £104.1 million for firms subject to BIPRU but there is no
capital shortfall for firms subject to IPRU(INV) Chapter 5. More information on our
analysis of these firms is in Table 5.
Venture capital firms
36. We reviewed the venture capital (CAD exempt) firms subject to IPRU(INV) 5.2.3R(2),
which sets a £5,000 capital requirement. Many large firms already hold own funds that are
significantly greater than AIFMD levels. However, for other firms, we have calculated
a total capital shortfall of approximately £31.6m under the AIFMD. Like for other firm
categories, the professional negligence requirement will be new and, on an aggregate
basis, firms would have to increase own funds by approximately £7m to meet it. More
information on our analysis of the population is in Table 5.
Internally managed investment trusts
37. We analysed the latest balance sheets of eight internally managed above-threshold investment
trusts based on their reported assets under management. As these investment trusts are large
active investors, they tend to have large amounts of cash and cash equivalents on the balance
sheet, as well as substantial equity (an approximation for own funds). The AIFMD capital
11 This is likely to be allowed for by the Level 2 Regulation, but we propose that it would not be cost-effective to allow a firm to use this.
Financial Services Authority A1:9