EUROPE - A discussion paper on the Alternative Investment Fund Managers Directive (AIFMD) published this week by the UK regulator leaves significant questions unanswered, critics have warned.

The Financial Services Authority (FSA) offered “provisional thinking” on the directive ahead of a consultation document to be published later in the year, and asked for comments on issues including the definition of joint venture and the costs of compliance.

Sam Kay, investment funds partner at law firm Travers Smith, said it was clear real estate funds would be affected, but that he expected no more clarity from the FSA until the second half of the year.

“In some areas, the FSA can’t do anything except implement the directive, but other areas allow for national variations - including how you define a joint venture,” he said.

Although the FSA document outlines some characteristics of a joint venture - that it involves two parties in day-to-day operations, with no external fundraising - it falls short of a definition.

PwC partner Amanda Rowlands said: “There’s quite a lot around the edges to be discussed. The real estate industry still needs clarity on who is a manager, for example.”

She said it was still unclear whether listed companies, corporate vehicles or property management businesses would fall outside the scope of the directive.

“Large parts of the alternatives sector know they will be impacted, but parts of the real estate industry are still not sure,” she said.

“It’s difficult to draft a detailed regulation that captures a diverse industry - and this is regulation that was designed for hedge funds.

“The majority will comply if the directive applies to them, but some will resent it because they feel they have no exposure to systemic risk.”

Although offshore operations will effectively fall outside the directive in the short term, smaller real estate funds could find it hard to adapt unless implementation includes some concept of proportionality.

“If it does, you won’t see too many small fund managers falling over,” said Rowlands.