Imposing blanket regulation on Alternative Investment Funds would harm European growth and competitiveness
Brussels, Belgium — MFA urged the European Commission (EC) to refrain from applying a one-size-fits-all macroprudential regulatory framework to nonbank financial intermediaries (NBFIs) in a comment letter submitted today. The letter is in response to the EC’s targeted consultation on macroprudential policies for NBFIs.
The letter emphasizes that the NBFI sector is diverse and encompasses a wide range of financial institutions with varying risk profiles, operational structures, and regulatory oversight.
Alternative investment funds (AIFs) and their managers are important and well-regulated, and do not pose a systemic risk to the economy. MFA contends that, considering the diverse nature of the NBFI sector, it would be unsuitable to impose uniform macroprudential regulations across all NBFIs.
AIFs increase liquidity, enhance capital markets, and supply vital capital to businesses of all sizes, which creates jobs and drives economic growth across EU Member States. AIFs also generate returns throughout the economic cycle for their investors, which include pension funds and foundations. An ill-suited macroprudential regulatory framework would stifle AIFs, harming markets, investors, and broader economic growth and competitiveness.
“Alternative investment funds are an important, well-regulated part of Europe’s economy and are not a systemic risk. Imposing a one-size-fits-all regulatory framework on alternative asset managers would restrict their ability to provide capital to European companies, create jobs, and enhance capital markets,” said Bryan Corbett, MFA President and CEO. “Europe should seek to foster investments from alternative investment funds in order to best achieve the Savings and Investments Union objectives, and not burden it with ill-fitting regulations that fail to recognise their distinct characteristics and risk management controls.”
MFA’s letter outlines the reasons why AIFs should not be subject to macroprudential regulations similar to those applied to depository institutions. Appropriate and dynamic risk management is a cornerstone of the AIF industry. AIFs are not a systemic risk because they have:
- Sophisticated investors: AIFs are funded by sophisticated institutional investors who fully understand investment risks. They are not funded by depositors nor backstopped by the government.
- Liquidity management: AIFs’ redemption limitations are calibrated to the liquidity of underlying assets, preventing “run risk”.
- Risk management: AIFs use limited leverage and maintain detailed, robust margin and risk management practices with their dealer counterparties.
The letter also encourages regulators to harmonise reporting requirements across global markets. This would improve the effectiveness of oversight without imposing unnecessary or duplicative reporting burdens on market participants.
Read the full comment letter here.
About the global alternative asset management industry
The global alternative asset management industry, including hedge funds, credit funds, and crossover funds, has assets under management of €5 trillion (Q3 2023). The industry serves thousands of public and private pension funds, charitable endowments, foundations, sovereign governments, and other global institutional investors by providing portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets.
About MFA
Managed Funds Association (MFA), based in Washington, DC, New York, Brussels, and London, represents the global alternative asset management industry. MFA’s mission is to advance the ability of alternative asset managers to raise capital, invest, and generate returns for their beneficiaries. MFA advocates on behalf of its membership and convenes stakeholders to address global regulatory, operational, and business issues. MFA has more than 180 member fund managers, including traditional hedge funds, credit funds, and crossover funds, that collectively manage over €3 trillion across a diverse group of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors to diversify their investments, manage risk, and generate attractive returns over time.
