February 2020 - Alternative Investment Funds Managers - How to do business in today's environment

While the entry into force of the AIFMD has without a doubt revolutionised the European landscape for AIFs and their service providers, numerous external forces have since considerably re-shaped the operating models of AIFMs and service providers. Indeed, a combination of regulatory requirements such as CSSF circular 18/698, global initiatives like the OECD/G20 Inclusive Framework of base erosion and profit shifting (BEPS), political events like Brexit or the rise of technological and digital initiatives have played their part into how European and global alternatives asset managers are doing business in today’s environment.

In this context, PwC hosted a session with representatives from 16 Luxembourg-based AIFMs to discuss:

• Regulatory developments (CSSF 18/698) and their impact on operations
• Tax substance requirements and how to reconcile them with regulatory requirements
• Scalability and means of achieving it.

Discussions showed that the operating model of AIFMs has considerably evolved since the inception of the AIFMD, in part due to the maturing of the alternatives market but also due to external forces, including additional regulatory requirements, a new tax environment and political events like Brexit, further accelerating these developments.

Therewith comes the need for a sound balancing act between the CSSF’s regulatory and the tax authorities corporate substance requirements in the most operationally efficient and cost-effective way possible as well as the requirement of further joint guidance from the authorities thereto.

With participants reporting rapid growth, scalability is another topic high up on everyone’s agenda. Although short- to medium-term investments continue to be made with regard to additional resources or process enhancements, all participants agreed that they were on the run-up to the digital era and will all have to jump on it eventually.

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