Regulatory framework of alternative investment funds in the European Union

Alternative investment funds play a significant role in the global economy, as well as in European Union. In the aftermath of the financial crisis of the early 21st century, the growing concentration of this investment sector has particularly drawn regulatory attention considering the potential systemic risks to the financial stability, which has given light to the regulatory framework for alternative investments industry, namely Alternative Investment Funds Managers Directive (AIFMD). AIFMD’s key purpose is to develop internal market for both European and foreign alternative investment funds, and harmonize heterogeneous approaches among member states for the oversight of alternative investment fund managers. Being one of the most debatable legislative introductions, AIFMD continues changing the regulatory landscape for investment activities, which often causes uncertainty and additional burden for market participants. Having a wide influencing power, AIFMD applies non-differentiated approach to regulation of all types of alternative investment funds irrespective of their functional and economic characteristics or risk profile. As a consequence, not all AIFMD provisions are practically realizable for particular investment funds due to their specifics. Nonetheless, identified regulatory gaps, as well as inconsistent application of the requirements in different member states further contribute to the pro-regulatory rhetoric and harmonization trend, which on its own can hardly meet the proclaimed goal of preventing systemic risks or adequately address current industry needs.