Confusion continues to surround the Alternative Investment Fund Managers Directive, the European Union’s controversial first attempt to oversee hedge funds and private equity by harmonizing regulatory standards across the region.

With the AIFMD due to be transposed into national law by July 2013 across all 27 nations of the EU, many of the detailed technical standards have still to decided upon.

Initially, the European Commission had said that the more-detailed Level 2 text would be announced this September but there is still no firm indication as to when this text will be adopted.

And the European Securities and Markets Authority, the pan-European regulator, has yet to establish draft regulatory technical standards on AIFMD definitions and also renumeration guidelines, both of which are expected some time in the first quarter of next year.

“One of the challenges of the AIFMD is that you don’t really know what you need to do,” Paul Compton, head of asset management strategy at SunGard, a trading technology firm, told Markets Media.

“Not all the reporting formats have been defined. You don’t actually know when you will need to comply with every dot and comma. There is a degree of uncertainty about it.

“We are in a period when the operational side of the hedge funds is under a greater and harsher spotlight than ever before. It’s clear that the AIFMD is just one of several regulations that are making big changes.”

In the meantime, some EU countries have started to adopt the AIFMD—which, so far, is only made up of its basic Level 1 text—into national law. The Netherlands has already approved implementation of the AIFMD, while Luxembourg expects adoption by the end of this year. Germany has published a draft bill implementing the AIFMD which goes beyond the directive’s minimum requirements while Ireland is expected to sanction the directive by January.

While the Alternative Investment Management Association (Aima), a London-based hedge fund lobby group, is now providing guidance to its members over areas of uncertainty in the AIFMD to its members in advance of the release of the final Level 2 text.

“We expect the AIFMD’s implementing measures to be published shortly, and when that day finally comes, the global industry will have only a few months to comply with probably the most extensive set of regulatory reforms in its history,” said Andrew Baker, chief executive of Aima. “We are under no illusions as to the size of the task facing the industry.”

A recent survey of alternative managers by London-based accountancy firm PwC, meanwhile, suggests that over 85% have not started compliance or implementation programs to address requirements of the AIFMD.

This may be a problem for hedge fund investors as major implementation projects can take up to 12 months and the July 2013 deadline—for when European alternative investment managers will need to be compliant with the AIFMD—is fast approaching.

With institutional investors piling more and more money into the hedge fund industry in recent years, as they look for higher returns on their portfolios, this potential lack of compliance may severely limit where investors can place their capital.

Compounding the issue is the likelihood that some national regulators across Europe may further limit investor choice by creating additional barriers and regulatory hurdles going beyond the AIFMD rules. These requirements will likely force costs of investment up and may, for a period, restrict investors’ access to only those funds that are able to comply in time.

“It is ironic that European rules which aimed to protect investors are likely to end up limiting the choice of those investors,” said Rob Mellor, hedge fund leadter at PwC.

“Against a low return environment, institutional investors, including the pension funds for Europe’s workers, will be looking to access global markets and the best managers—implementing AIFMD in time is therefore potentially a significant barrier.”

The AIFMD is the first attempt by Brussels to oversee hedge funds and private equity by harmonizing regulatory standards across the EU. When it was first mooted back in 2009, the directive was heavily criticized for its potential to stifle Europe’s fund management industry. But, after endless arguments and negotiations, there is now little more than a year to implementation date and industry opinion has now turned to muted acceptance and a desire to work with authorities to make the best out of the situation.

“Managers are facing significant organizational and operational change under AIFMD with far-reaching business consequences,” said Mike Hartwell, head of investment management at Deloitte Ireland, a consultancy.