EUROPE - The Alternative Investment Fund Managers Directive (AIFMD) will boost investor confidence in hedge funds and pave the way for potentially significant asset growth, according to French experts.

According to a number of French hedge funds and the securities regulator AMF, which participated in Opalesque's third France Roundtable, the AIFMD could encourage fund managers to bring offshore hedge funds onshore.

This could, in turn, lead to greater interest from investors such as pension funds for alternative strategies, experts said. 

Sylvie Dehove, deputy chief investment officer at Amundi Alternative Investments, said: "We need to demystify hedge funds. We need to explain exactly where the performance is coming from, to discuss liquidity and transparency, especially in the regulated environment - in a word, gain confidence.

"In this respect, the AIFMD is a good answer. The arrival of new prudential directives may help boost alternative offers by waiving political constraints some institutional investors had."

Nathanael Benzaken, responsible for managed account platform development at Lyxor, largely agreed, arguing that the transition towards new regulation would make hedge funds more "respectable" for French and European onshore investors.

"Many of these investors are fully supportive of the move from what they sometimes perceive as offshore, tax-haven investing, or non-transparent black box investing, towards onshore and more regulated investments," he said.

"We hope the AIFMD acts as a catalyst for those large investors who have never touched hedge funds before, because of their offshore unregulated nature, to at last build an allocation to hedge funds."

French hedge fund managers said some of the largest funds of funds had shifted their model from offshore to European regulated, 100%-onshore framework.

However, they also recognised that further steps were required in the implementation of the AIFMD to win back institutions' trust and make destinations such as France more attractive.

According to Yves Coignard, chief investment officer and co-founder of Volvar Asset Management, the first step Paris could take to increase its presence would be to reduce the number of different vehicles available to hedge funds and clarify the advantages to having a French structure.

"In a way," Coignard added, "the regulator should undergo the same transformation as the industry, aiming for more transparency and clarity."

In addition, the Financial Stability Board (FSB)'s involvement in regulations may result in fresh concerns for the hedge fund industry.

Patrice Bergé-Vincent, head of the asset management regulation division at French securities regulator AMF, pointed out that, in the coming years, the industry would make a clearer distinction between UCITS and AIFM.

He said UCITS products would be more directed towards retail investors and alternative investment funds reserved for the most sophisticated investors.

"However," he warned, "the increased focus and activities of the FSB around market regulations may soon turn into a new regulatory paradigm that could be a new concern for the asset management industry going forward."