The directive from the EU Commission defines an alternative investment fund as any fund which is not regulated as a Ucits fund. It will therefore apply to the managers of virtually all the AIC's members.

Daniel Godfrey, director general of the AIC, says: 'These disappointing proposals present a major threat to investment companies and appear to justify the fears expressed by many that regulators would be unable to resist a knee-jerk reaction to the current financial crisis. Despite comments that the rules are aimed at addressing risks of a systemic nature, they effectively sweep up all non-Ucits funds and their managers indiscriminately. 

'The proposed directive fails to take any account of the substantial body of European regulation that our members already comply with. We will be calling on the Commission to change the rules to minimise the impact on our members and recognise the high standards of disclosure and transparency that listed investment companies are already delivering.'

According to the AIC, key points of concern for investment companies are:

• The directive requires funds to have arrangements in place for the redemption of shares, which is not appropriate for closed-ended funds such as investment companies.
 
• The directive assumes that a fund has a single manager responsible for the entire operation of the fund, both fund management and administration. Many investment companies choose to separate these activities, or have a multi-manager structure. It is not clear whether the directive would permit this in the future, due to the nature of the obligations imposed on the AIFM. It also undermines the role of the independent board.

• The directive requires an independent valuation of the assets of the fund once a year, and each time shares are issued or redeemed, which will add significant costs to investment companies investing in illiquid assets, such as private equity, property etc.

• Shares in alternative investment funds will be deemed to be complex financial instruments, meaning that it will be harder for retail investors to buy them.