DLT and Blockchain: Innovations in the Alternative Investments Sector
Of course, at BAI everything revolves around the topic of alternative investments, across asset classes and strategies. Our approximately 250 members represent the entire value chain in professional asset management in the private debt, private equity, infrastructure or liquid alternatives segments, i.e. asset managers, banks, fund companies, custodians and other service providers such as law firms, investment advisors or tax consultants.
In addition to the megatopic of sustainable finance, our industry is naturally also concerned with all facets of the future topic of digital finance. On the one hand, it’s about using new technologies along the value chain; distributed ledger technology (DLT), for example, is changing and improving many processes and transactions in the fund business. On the other hand, digital assets and the tokenization of assets, for example, are opening up new investment opportunities. We have also been accompanying this topic for a number of years and recent regulatory developments at national and European level have now given rise to the idea of launching an InnovationsDay in addition to relevant webinars in order to create a special platform for technology topics. In addition to blockchain and crypto-assets, our event on September 30, for example, will also focus on the use of artificial intelligence in asset management.
Our current agenda, which will continue into next year, is of course dominated by the aforementioned topics of sustainable and digital finance. Various legislative acts have already been passed or are still in the regulatory pipeline, so that implementation will be a major issue next year. Legislative procedures are very complex and after the framework legislation, implementing acts, technical regulatory standards, national implementation laws, etc. regularly follow. In the area of sustainable finance, we are talking about very detailed, technical and granular requirements that take on a level of complexity and, unfortunately, also bureaucracy, which causes the industry a lot of trouble and which we also try to counteract so that the acceptance of sustainable investing does not suffer. Pragmatism is called for here.
In the field of digital finance, as already briefly outlined, blockchain technology opens up many new possibilities for use and application. Fund companies and asset managers will have to take a hard look at how they use this technology and how their processes and systems, including risk management, need to be aligned with it in the next year at the latest. There are new market players and service providers, big changes are coming in the market. We will present the challenges facing institutional investment in the coming year as part of our annual BAI Investor Survey in the fall.
The AIFMD review is indeed a key topic that is coming up soon. The EU Commission will present a draft amendment directive in the fall, which may be more comprehensive than expected by the industry and investors. This is because the AIFM Directive has proven itself in practice and there are no systematic or fundamental weaknesses that need to be addressed. From the point of view of the Commission, which is partly guided by suggestions from the European securities regulator ESMA, the following topics, among others, are to be addressed in the review: Introduction of an EU regulatory framework for credit funds, further harmonization of the requirements for depositaries, revision of the regulations on outsourcing, liquidity management and reporting.
At the same time, the EU Commission will also present proposals for revising the ELTIF (European Long-Term Investment Funds) Regulation. This European fund format for long-term investments is to be designed in a more practical way. So far, acceptance in the industry is still lacking, although the idea and concept are actually correct and the ELTIF is also open to private investors. Various member companies already use this format, but there is a need for optimization. The BAI has already closely accompanied the adoption of the AIFM Directive and will again play an important role for the industry in the amendment. Our members always have the opportunity to get involved in important association work through our technical committees.
About Frank Dornseifer
Frank Dornseifer is Managing Director at Bundesverband Alternative Investments e.V., Bonn, and has been active in investment, capital market and corporate law in various functions for more than 20 years. After his studies in Bonn, Dublin and Lausanne, he worked as a lawyer in an international law firm in the areas of corporate and securities law. He then worked for several years as deputy head of unit at BaFin in the Investment Supervision Policy Unit and as a representative on the Investment Management Committee of the Organization of International Securities Commissions (IOSCO) before moving to BAI in 2007, where he has since managed and coordinated the association’s activities. He is the author of numerous specialist publications on investment and corporate law and editor of commentaries on the KAGB/InvG and the AIFM Directive. The Finance Committee of the German Bundestag and the European Parliament have appointed him several times as an expert in legislative procedures on capital market law.