The Alternative Investment Fund Managers Directive (AIFMD) was implemented in Norwegian legislation by the Alternative Investment Fund Act of 20 June 2014 (AIF Act) and regulations of 26 June 2014 (AIF Regulation). As from 1 January 2015 all market participants governed by the AIF Act must now comply with the new regime.
The AIFMD regime will impact on the management, administration and marketing of alternative investment funds (AIFs). These are collective investment schemes not subject to the Undertakings for Collective Investment in Transferable Securities (UCITS) regime, typically hedge funds, private equity and real estate funds. Until now, these funds have been operating in a regulatory void outside the scope of European regulators, and the AIFMD is the first single market framework for this sector. The benefit of the AIFMD for market participants is the opportunity it gives them to passport their services throughout the EU, based on a single authorization. It also makes it easier for AIF managers (AIFMs) to market their funds to professional investors in line with the notification procedure (see below) across the EU/EEA.
Smaller AIFMs whose assets under management amount to less than EUR 500 million (for unleveraged funds with long lock-in periods) or EUR 100 million (for other types of AIFs) are subject to a regime tailored specifically to them. They are only required to register with the national regulator and to comply with limited reporting obligations. They will not, however, be entitled to passport their services or market their AIFs in other EU member states. This article considers only those AIFMs who are fully authorized under the AIFMD regime.
Real estate funds governed by the Norwegian AIF regime
The administration and ownership structure of Norwegian real estate companies and funds varies. The country has few listed real estate companies. The sector consists mainly of privately owned entities set up as private limited liability companies, limited partnerships or internal partnerships. The Norwegian state, insurance companies and pension funds are also large-scale direct owners of real estate. With respect to real estate funds there are approximately 25 to 30 fund providers in the Norwegian market, however, some of these are currently in the process of closing their real estate funds.
In terms of Norway’s incorporation of the directive, there are no statutory exemptions for real estate companies and funds. It is up to each real estate company or fund to assess whether they fall within the scope of the AIF Act. This assessment should be based on the entity’s structure, ownership, business purpose, governance structure and corporate documents; the type of undertaking is irrelevant.
Usually a real estate company has a general commercial purpose and strategy (that is, not a defined investment policy) and its management is involved in the day-to-day management through actively operated property portfolios, acquiring real estate, developing property projects and managing tenancy relationships, all of which factors tend to suggest that it is not an AIF.
According to the Norwegian Financial Supervisory Authority (FSA), the number of Norwegian applications for AIF status total about 35, 13 of which relate to securities asset management undertakings.
Marketing of real estate AIFs in Norway
With respect to the marketing of units (a direct and indirect offering or a placement) in AIFs (excluding national funds as defined in the AIF Act), different regulations apply depending on whether the marketing is to a professional investor (any client meeting two of three criteria: a total balance sheet of EUR 20 million; turnover of EUR 40 million; or own capital of EUR 2 million) or a non-professional investor (any investor not considered as a professional client, though they may apply to be treated as such). Each of these is considered in turn below.
The directive does not regulate the marketing of units in AIFs to nonprofessional investors. Each member state makes its own regulations in this area, and under Norwegian law, marketing of units in AIFs to non-professional investors is not permitted without FSA authorization. The regime applicable to marketing activities to professional clients is less stringent and is based on a notification procedure.
Marketing of real estate EU AIFs to professional investors in Norway
Marketing of units in real estate AIFs established within the EU to professional investors in Norway must be notified in line with the article 32 of AIFMD and under the AIF Act, section 6-3.
The AIFM must submit a notification to the competent authority of its home state. The competent authority has 20 days after receipt of the notification to inform the FSA if the AIF is intended to be marketed in Norway. The AIFM is allowed to start marketing units in Norway as soon as it has received notification from the home state authority that the marketing notification has been filed.
The requirements for notification are set out in the regulations laid down by the home state. Where it is intended to market to investors in EU member states other than the home state of the AIF, the requirements for notification can be found in Annex IV to the AIFMD.
Marketing of real estate EU AIFs to non-professional investors in Norway
In Norway, an AIFM is allowed to market units of an EU AIF to non-professional investors subject to acquiring a marketing permit from the FSA.
The application for a permit to market an AIF to non-professional investors must include the key investor document and must describe the AIF’s marketing plans, including measures taken to ensure that any marketing undertaken will comply with the applicable conduct of business rules, and include a statement that the AIF is permitted to be marketed to nonprofessional clients in their home state by the competent authority.
A key investor information document must be prepared for each AIF. The information is to be presented in a way that makes it easily understood, clear and not misleading, and capable of forming the basis of an informed investment decision. The document must be made available on the AIFM’s homepage. Information for nonprofessional investors must be in Norwegian, unless the AIF Regulation provides an exemption from this, or a dispensation has been granted.
If the AIFM is required to publish a prospectus according to the Norwegian Securities Trading Act, chapter 7, only information not contained in the prospectus needs to be disclosed separately or given as additional information in the prospectus.
The AIFM must inform the FSA in advance of any material change to information provided in the marketing application. If the FSA believes that the change is not in line with the legislation, then it must inform the AIFM of that, and it also has the power to stop changes being made, or to take other measures to stop the marketing of the fund.
The FSA may also impose additional requirements on the AIFM when issuing the marketing permit if it considers that these are required to safeguard Norwegian investors.
Withdrawal of marketing permit
The FSA may revoke an authorization to market an AIF, if the requirements set out in the legislation are no longer being met, or where the conditions of the permit are breached. The FSA may, in exceptional cases, revoke a permit in order to protect non-professional investors.
Who may distribute units in an AIF?
The units of an AIF can be marketed by a manager with AIFM authorization, or an asset manager with authorization under the Norwegian Securities Fund Act, section 2-1. Other regulated entities may also be entitled to market units in an AIF, in cooperation with the manager. The AIF Act does not expressly make any provision as to who can distribute units in an AIF, other than the AIFM and asset manager, and this must be considered individually in each case.
Marketing of real estate non-EU AIFs established outside EU/E
It is permissible under Norwegian law for managers of non-EU AIFs to market AIFs to Norwegian professional investors. However, this is conditional on a marketing permit being issued by the FSA. The FSA has entered into Memoranda of Understanding with other foreign supervisory authorities to facilitate the marketing of non-EU AIFs in Norway.