EUROPE - The Alternative Investment Fund Managers Directive (AIFM) could slash the number of viable fund models and stifle innovation across the industry, the Alternative Investment Management Association (AIMA) has warned.

In its submission to the European Securities and Markets Authority (ESMA), the hedge fund association said any single piece of legislation would be unable to cater to all alternative investment vehicles.

It also said the impossibility of legislating all vehicles should not be viewed as a failure.

The organisation's chief executive, Andrew Baker, insisted that guidance should take the place of ironclad regulation.

"Prescription could risk setting inappropriate limits on what is permitted and, in so doing, lead to an unintended reduction in the breadth of existing business models or strategies or significant loss of innovative potential for the EU alternative asset management industry and, thus, benefits to EU investors," he said.

"We would urge ESMA, wherever possible, to work toward solutions based on achieving a regulatory outcome, accepting that AIFM in different sectors should be able to apply the legislation in different ways, based upon the nature of their particular business model."

Jiri Krol, the group's director of policy and government affairs, added that openness was also an important measure to apply.

"Flexibility, proportionality and openness are three key features the regulation should retain if it is to succeed in delivering the policy objectives while preserving the existing breadth of business models and strategies," he said.