AIFMD – Alternative Investment Fund Manager Directive

Background
The Alternative Investment Fund Managers Directive was adopted in 2011 and had to be implemented into national law by July 2013. The Directive was introduced as a reaction to the economic and financial crisis and as an instrument for improved monitoring of macro-prudential system-based risks by alternative funds, such as hedge funds and private equity. It requires all AIFMs within scope to be authorised and to be subject to harmonised regulatory standards. At the same time, it permits AIFMs to market funds to investors throughout the EU subject to compliance with regulatory standards.

Main issues
For the real estate industry, some of the major issues regarding the directive are unlimited liability for external valuers and member states ‘gold plating’ requirements related to obtaining or exercising passport authority, including imposing excessive fees and add-on requirements. In addition, inconsistent definitions of important concepts such as ‘professional investor’, ‘material change’ and ‘marketing’, as well as the implementation of a standard definition of pre-marketing are obstacles to the smooth functioning of the passporting system.

The European Commission mandated KPMG to provide a comprehensive study on how the AIFMD has worked in practice and to what extent its objectives have been met. After getting input form stakeholders, including the European Real Estate Forum participants, DG FISMA is reviewing the KPMG findings and a consultation is expected to be launched to seek stakeholders’ input.

Documents
The EREF has currently not published any positions on this topic. However, many participating organisations have developed their own position papers. To learn more, please view the individual participating organisations' websites.

Solvency II – Directive on the Taking-up and Pursuit of the Business of Insurance and Reinsurance

Background
The Solvency II Directive creates a single market for insurance services in Europe and harmonises the capital adequacy requirements of European insurers. Solvency II seeks to guarantee that insurers can meet obligations to policyholders with 99.5% probability, even in case of extreme market downturns, which is achieved in part through a capital reserve requirement.

Main Issues
Research shows that the Solvency II standard model SCR for real estate does not reflect the actual volatility of real estate investment across Europe. This fact has been raised in meetings with policy makers in the European Parliament, Commission and Council, as well as EIOPA (European Insurance and Occupational Pensions Authority). It has also been addressed in many EREF members’ relevant regulatory consultation responses, including the Capital Markets Union, which is focused on removing obstacles created by EU financial regulations and increasing long-term investment in Europe. EIOPA’s 2020 review of Solvency II is an opportunity to adopt a standard model solvency capital requirement for real estate based on better data.

Documents
MSCI Solvency II update report (Mar 2017)
Summary: This report offers a detailed review of the Solvency ll risk based regulatory framework proposed for defining insurance company capital adequacy. The study focuses specifically upon real estate and was funded by a consortium of six key trade bodies, each supporting an aspect of insurance company investment in property and more broadly.

Markets in Financial Instruments Directive II

Background
The EU Markets in Financial Instruments Directive II came into effect in January 2018. Under the directive, the activities of many fund managers serving institutional investors in Europe are subject to far-reaching new requirements; most important for many EREF members are requirements concerning reporting detailed information on costs and charges, suitability determinations and recording discussions.

Main issues
The industry raised the issue that the directive inadvertently sweeps up some activities of AIFMs that are not well tailored for institutional investment activities. This issue, along with clarifying how the regulation’s requirements must be implemented, are focus of on-going efforts.

Documents
The EREF has currently not published any positions on this topic. However, many participating organisations have developed their own position papers. To learn more, please view the individual participating organisations' websites.