Malaysia finalises AIFMD agreement

Aug 20, 2013

The Securities Commission will cooperate with the EU under the Alternative Investment Fund Managers Directive. But the number of Malaysian fund houses marketing to European investors may be limited.

Malaysia has joined the list of countries to have struck an agreement with the European Union related to the Alternative Investment Fund Managers Directive (AIFMD), which came into effect on July 22.

While Asian asset managers may be put off targeting European investors, due to AIFMD restrictions on non-EU-domiciled funds, the move should help facilitate such distribution for those that wish to sell products into Europe.

Under a series of memoranda of understanding (MoUs), Malaysia’s Securities Commission (SC) will cooperate with EU regulators on the supervision of cross-border offering of alternative investment funds.

The regulator signed up in principle to the agreement on July 22 but it has taken a few weeks to obtain final approvals.

Other Asia-Pacific jurisdictions to have struck MoUs on AIFMD are Australia, Hong Kong, India, Israel, Japan, Labuan, Pakistan, Singapore, Thailand and the United Arab Emirates.

Signatories to the MoUs agree to provide mutual assistance in the supervision and oversight of managers of alternative investment funds, their delegates and depositories that operate on a cross-border basis.

"At present, the cooperation agreements serve the main purpose of allowing marketing into the EU,” notes Matthias Feldman, a partner at law firm Clifford Chance in Hong Kong. "They would not affect marketing from the EU into the other countries unless those countries changed their laws.

"For example, when Hong Kong signs [AIFMD] cooperation agreements with the EU, this does not change the offering regime for European funds to Hong Kong investors."

The supervisory arrangements agreed to by the SC will pave the way for Malaysian fund managers to perform fund management activities on behalf of EU asset managers and to manage and market alternative investment funds in the EU.

EU fund managers will also be able to manage Malaysian alternative investment funds, providing a gateway for Malaysia to attract international capital from foreign investors.

Larger Asian funds, many of which have a significant number of Europe-based investors, are likely to comply with the AIFMD rules by running two parallel fund structures – one AIFMD-compliant and another Cayman Islands-domiciled.

But smaller firms may simply avoid Europe altogether to avoid the additional costs, and instead focus their fundraising efforts elsewhere, such as on North America.

Malaysia’s fund management industry has grown to RM550 billion ($167 billion), with 81 licensed fund managers, which are potentially set to benefit from these cross-border arrangements, says the SC.

The regulator already has similar supervisory cooperation arrangements with Ireland and Luxembourg authorities. The SC has also entered into mutual-recognition arrangements with Hong Kong and Dubai to allow for the distribution and marketing of Islamic funds between Malaysia and these jurisdictions.