By Georgina Lee
 |
| Thomas Hugger COO & CFO of Leopard Capital |
A private equity COO fears rule tightening is too broad-brush and will inflate costs, while a fund-of-hedge-fund COO says clarity is needed over new reporting requirements.
Private equity and
fund-of-hedge-fund managers in Asia point to growing fundraising difficulties outside
the region amid a regulatory clampdown.
The alternative investment
fund managers directive (AIFMD) comes into force in Europe as early as this
June – reform that will reshape the way alt funds are marketed in the EU. No
matter where they are domiciled, all non-Ucits funds are covered under the
directive.
Thomas Hugger, COO for $57
million PE manager Leopard Capital, says having the same, broad-brushed
regulatory principles governing private equity funds and hedge funds fails to
take into account the customised nature of how PE sponsors put their money to
work.
He notes that using a
depository is a challenge for PE managers. Unlike hedge funds, PE sponsors do
not always invest in a company’s equity. Instead, they may invest by providing
mezzanine capital, convertibles, loans or other structured products and
derivatives.
“For private equity, each
transaction is different,” says Hugger. “We have up to 13 investments in
Cambodia and none of these transactions have shown a similar investment
structure.”
Further, while alternative
managers in the EU can market funds throughout member states, Asia-based
managers, who hope to sell their capabilities to European investors but whose
funds are not domiciled in the EU, might feel hard-pressed.
That’s because, to market
funds in the EU under AIFMD, Asia-based managers with non EU-domiciled funds
would likely opt for private placement – where fund marketing is subject to
more stringent requirements.
Hugger notes that Leopard
Capital recently talked to a European institution about investing into a
Bangladesh PE fund it is raising money for. Leopard is raising capital for
three funds this year, on top of three it already manages invested in frontier
markets.
But the European institution
said it would not invest in funds sited in offshore havens such as the Cayman
Islands, where most of Leopard’s funds are domiciled. It requires that a fund
be domiciled in an EU jurisdiction. “That means that we might have to
re-domicile the fund to attract capital from these European investors,” notes
Hugger.
He expects more
Asia-registered funds to be re-domiciled in the EU in response to such demands
from European investors.
On a separate note, Asia-based
hedge fund managers registered with the Securities and Exchange Commission are
looking into whether they need to register and report to the Commodities
Futures Trading Commission (CFTC). Such a requirement is widely viewed as
onerous operationally and costly.
Many hedge funds are regulated
by CFTC as “commodity pools”, and CFTC moved last year to repeal certain
registration exemptions that hedge funds had previously been granted.
Now they are required to
provide additional quarterly reporting to investors; use a specific monthly
return valuation method prescribed by CFTC, and have some staff fingerprinted
and sit new exams.
Li Yan Yan, COO of Sail
Advisors – a fund-of-hedge-funds firm that invests in multiple managers
globally – says clarity is needed, including whether FoHF managers will be
exempt from CFTC registration.
According to appendix A of its
regulations, CFTC will grant exemption from registration if the aggregate
initial margin and premium does not exceed 5% of a fund’s liquidation value.
“As things stand, we are
waiting for certainty that FoHF managers will be able to rely on the exemptions
set forth in Appendix A of the regulations based on either the 5% rule, or
otherwise,” says Li.
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