The AIFMD establishes common requirements across the EU to regulate managers (“AIFMs”) of alternative investment funds (“AIFs”). With very limited exceptions the Directive covers all funds that are not UCITS funds.

The Directive has to be implemented by regulations to be issued by the EU Commission (“Level 2”) and national regulations must then be brought into line with it. AIFMs must comply with AIFMD from 22 July 2013 and apply for authorisation under it by 22 July 2014. Level 2 is seriously delayed and may not be published until December 2012.  The Association of Investment Companies, the trade organisation for the closed ended investment company industry, has called for the implementation deadline to be deferred saying that it is now “possibly impossible” for funds to comply in time. The delays are understood to have been caused by continuing controversy over key crucial provisions, including the concept of a letter-box entity (which cannot be an AIFM), the liability of depositaries and the co-operation arrangements with non-EU regulators which will allow non-EU AIFs and AIFs with non-EU AIFMs to be sold into the EU.

The AIFM for each AIF needs to be appointed in  time to make the changes necessary to comply with the Directive. The AIFM must be responsible for portfolio and risk management and must not be a letter-box entity. Under Level 2 an entity that delegates investment management may be a letter-box entity in which case established business models, e.g. for managing Qualified Investor Schemes and Non-UCITS Retail Schemes, will not survive.

A depositary must take responsibility for custody of the AIF’s assets, and contractual arrangements, annual reports, constitutional documents and prospectuses must be updated to comply with the Directive.

From 22 July 2013 AIFMD provides a passport for selling EU AIFs which have EU AIFMs to professional investors throughout the EU, ending the need to comply country-by-country with existing private placement rules. Up to 2015 non-EU AIFs and AIFs with non-EU AIFMs cannot get an EU passport and can only be sold on a private placement basis for which AIFMD applies additional requirements and individual EU States can impose even stricter rules. In 2018 private placement rules are likely to be terminated after which only those AIFs which have AIFMD passports will be able to be sold in the EU.