In line with the AIFM Directive, French law excludes securitization vehicles from provisions applicable to Alternative Investment Funds (AIFs). However, French authorities deemed it necessary to prevent situations where a fund would take the form of a securitization vehicle for the sole purpose of circumventing the application of the AIFM Directive.
To such effect, secondary legislation (Decree no. 2014-1366 issued on November 14, 2014) clarifies the circumstances in which the AIFM Directive does and does not apply to securitization vehicles.
Broadly, the AIFM Directive is applicable to securitization vehicles meeting the following two criteria:
- The vehicles are directly or indirectly exposed, by more than 50 percent of their assets, to risks taking the form of financial securities or any other asset that does not represent an exposure to an insurance or credit risk; and
- The manager should exert some discretion in the management of such assets. Importantly, discretionary management does not include situations where the management company is bound by conditions or eligibility criteria set out in the fund's constitutional documents or where management decisions have purposes other than generating gains over the initial purchase price and, with respect to derivatives, obtaining the payment of the outstanding amount to the benefit of the securitization vehicles.
In addition, in all circumstances, some securitization vehicles will not be subject to the AIFM Directive, such as so-called "Fonds de prêts à l'économie" (i.e., a type of fund eligible for investment by French insurance companies) or securitization vehicles conducting securitization as defined in the capital requirements regulation ("CRR"–Regulation (EU) No 575/2013).
The decree takes immediate effect with respect to new securitization vehicles and applies to existing securitization vehicles as soon as their constitutional documents are revised in order to substantially amend their investment strategy.