What is a Registered Alternative Investment Fund Manager (“AIFM”)?
A registered AIFM is a firm that manages alternative investment funds (“AIFs”), which is exempt from most of the requirements of the Alternative Investment Fund Managers Directive (“AIFMD”) as implemented into Irish law by the European Union (Alternative Investment Fund Managers) Regulations, 2013 (“Irish AIFMD Regulations”) on the basis that the registered AIFM satisfies at least one of the following conditions for exemption set out in Regulation 4(2) of the Irish AIFMD Regulations:
a. the AIFM either directly or indirectly, through a company with which the AIFM is linked by common management or control, or by a substantive direct or indirect holding, manages portfolios of AIFs whose assets under management (including any assets acquired through use of leverage) do not exceed, in total, €100 million; or
b. the AIFM either directly or indirectly, through a company with which the AIFM is linked by common management or control, or by a substantive direct or indirect holding, manage portfolios of AIFs whose assets under management do not exceed, in total, €500 million and those portfolios consist of AIFs that:
(i) are unleveraged, and
(ii) have no redemption rights exercisable during a period of 5 years following the date of initial investment in each AIF
An AIFM that satisfies either of the conditions (a) or (b) above is a registered AIFM.
What do Registered AIFMs need to comply with?
Under the Irish AIFMD Regulations, registered AIFMs that manage Irish AIFs are required to register with the Central Bank of Ireland (the “Central Bank”) and comply with the following conditions:
1. Regulation 4(3) of the Irish AIFMD Regulations: Registration and Provision of Information
A registered AIFM is required to:
a. register with the Central Bank
b. at the time of such registration, identify itself, and the AIFs that it manages, to the Central Bank
c. at the time of registration, provide the Central Bank with information on the investment strategies of the AIFs it manages
d. provide the Central Bank, at regular intervals, with information on the main instruments in which it is trading and on the principal exposures and most important concentrations of the AIFs that it manages in order to enable the Central Bank to monitor systemic risk effectively, and
e. notify the Central Bank, in the event that it no longer meets the conditions to be a registered AIFM, which are set out above
2. Regulation 4(5) of the Irish AIFMD Regulations:
Central Bank Conditions
The Central Bank is entitled to impose conditions that it considers appropriate on a registered AIFM. However, such conditions may not be more onerous than the conditions applicable to an authorised AIFM (i.e. an AIFM that is required to comply with all of the requirements of the Irish AIFMD Regulations).
3. Level 2 Regulations: Annual Calculation, Monitoring and Reporting of Assets Under Management
The European Commission’s Delegated Regulation (EU) 231/2013 (the “Delegated Regulation”) requires a registered AIFM, on an annual basis to calculate the aggregate value of all the assets held in each AIF it manages, including portfolios of AIFs delegated by the AIFM to third parties but excluding portfolios of AIFs delegated to the AIFM by third parties and cross-investments between the AIFs or their sub-funds. For the purpose of determining the value of the AIF portfolios managed by the AIFM, the Delegated Regulation requires the assets of such AIFs to be valued in accordance with the valuation rules applicable to each AIF in its constitutional document and the laws of its place of organisation. The Delegated Regulation further clarifies that derivative instruments, including instruments with embedded derivatives such as convertible bonds, should be valued in accordance with the conversion methodology set out in Annex II of the Delegated Regulation.
Following the calculation and monitoring of assets under management, if the level of AIF portfolios managed by a registered AIFM exceed the €100 million or €500 million thresholds specified under Article 4(2) of the Irish AIFMD Regulations, then the registered AIFM is required to seek authorisation as an AIFM pursuant to Regulation 4(4) of the Irish AIFMD Regulations (see below).
4. Regulation 48 of the Irish AIFMD Regulations: Powers of the Central Bank to Request Information
If the Central Bank considers it necessary for the performance of its functions or for the proper and effective regulation of the registered AIFM, the Central Bank may, upon prior written notice, require a registered AIFM (including its solicitor, accountant, banker, auditor, financial or other adviser) to:
a. provide the Central Bank with any information specified in writing that the Central Bank may reasonably require
b. provide the Central Bank with records, including phone and data traffic records which the registered AIFM has control of, or access to, and which the Central Bank may reasonably require
c. prepare and provide the Central Bank with forecasts, plans, accounts or other documents
d. appear before the Central Bank and provide such information that the Central Bank requires, or provide an explanation of a decision or content of any records or information that is requested by the Central Bank
e. The Central Bank may require that information, records or documents requested to be supplied by the registered AIFM to be certified or attested as to their authenticity, which includes authentication by statutory declaration and that copies or extracts of same be taken by the Central Bank. Failure to provide any information, records or documents in the form reasonably required by the Central Bank will be treated as if they were not provided at all.
5. Regulation 49 of the Irish AIFMD Regulations: Power of the Central Bank to Issue Directions
In the interests of proper and effective regulation of financial markets, the Central Bank is entitled to give directions to a registered AIFM in the following circumstances:
a. the registered AIFM is unable or is unlikely to be able to meet its obligations to its creditors or investors
b. the registered AIFM is not maintaining, or is unlikely to be in a position to maintain, adequate capital or other financial resources having regard to the volume and nature of its business
c. the registered AIFM has failed to comply with, or is likely to fail to comply with any condition or requirement imposed by, or by virtue of, the Irish AIFMD Regulations or any other enactment
d. the registered AIFM is conducting business in such a manner as to jeopardise or prejudice:
• monies, securities or other investments or other property held by or controlled by it on behalf of an investor
• the rights and interests of an investor
• the orderly functioning of a financial market
In such circumstances, the Central Bank has broad discretion to suspend the activities of the registered AIFM or impose specific conditions on the registered AIFM’s activities.
A written direction issued by the Central Bank will set out all terms and conditions, deadlines and any incidental, consequential or supplemental provisions for implementing the Central Bank’s direction and ensuring that it is fully and effectively carried out.
Within 14 days of receipt of the Central Bank’s direction, a registered AIFM or a related undertaking can apply to the High Court for an order to set it aside. The High Court can accept applications made after this period if it considers it just and equitable in the circumstances to do so.
The High Court can also grant interim orders prior to it hearing the full application where it considers it just and equitable in the circumstances to do so; for example, it can suspend the requirements of the Central Bank’s direction pending the full hearing of the application. In addition, all or part of the proceedings can be held in private if, due to the nature of the case, the High Court considers it is in the interests of justice to do so.
6. Regulation 4(4) of the Irish AIFMD Regulations: No Longer Complying with the Threshold Conditions to be a Registered AIFM
If a registered AIFM manages AIF portfolios that in aggregate exceed the thresholds specified in Regulation 4(2) of the Irish AIFMD Regulations, the registered AIFM is required within 30 days of such fact, to apply to the Central Bank for approval as an authorised AIFM. Upon authorisation, the firm is subject to all of the requirements that apply to an authorised AIFM under the Irish AIFMD Regulations.
Can Registered AIFMs avail of the AIFMD Marketing Passport?
No, only authorised AIFMs can avail of the AIFMD cross-border marketing passport, which allows authorised AIFMs to market EU AIFs that they manage within the EEA. A registered AIFM that is looking to raise capital for AIFs that it manages in another EU Member State must:
• comply with the national securities laws of each Member State governing the marketing of AIFs, (so-called national private placement regimes), insofar as they permit, if at all, the private placement of AIFs managed by a registered AIFM, or
• rely on reverse solicitation, i.e. investors approaching the registered AIFM at their own initiative without a prompt or marketing being carried out by the registered AIFM.