Baker & McKenzie
25 August 2014
For more information, please
Olivier Van den broeke
Baker & McKenzie CVBA/SCRL
Alternative Investment Fund Managers
Directive implemented into Belgian law
The European Union's Alternative Investment Fund Managers
Directive (the "Directive") provides for comprehensive changes in the
regulatory framework applicable to alternative investment fund
managers ("AIFMs") that manage or market alternative investment
funds ("AIFs") within the European Union.
The Directive does not introduce rules and regulations on a
harmonized level for AIFs. However, it provides for an authorization
and prudential supervision for AIFMs (including self-managed AIFs)
which indirectly but heavily impacts the AIFs under management.
Detailed rules are laid down in delegated regulations and, more
specifically, in the Commission Delegated Regulation (EU) No
231/2013, which are all directly applicable in all EU member states.
The deadline for transposition of the Directive into national law by EU
member states was 22 July 2013. Belgium did not meet this deadline.
Finally, on 17 June 2014, the act of 19 April 2014 on alternative
undertakings for collective management and their managers (the
"AIFM-act") was published in the Belgian Official Gazette and has
generally entered into force on 27 June 2014.
The Directive and the AIFM-act define an AIF as a "collective
investment undertaking" which raises capital from a number of
investors with a view to investing it in accordance with a defined
investment policy for the benefit of those investors, but excludes
funds that are authorized under the EU UCITS regulations. The
definition is intentionally broad, without regard to form of fund entity,
fund structure (e.g., closed or open end), economic terms or
jurisdiction of formation, and captures hedge funds, private equity
funds, venture capital funds, real estate funds and infrastructure
funds. Holding companies, pension funds, certain supranational
institutions, national central banks, employee participation or saving
plans and securitization special purpose entities are excluded from
the definition. The definition may potentially capture co-investment
transactions or similar arrangements, however, depending on their
structure and economic terms.
As such, the Directive and the AIFM-act effectively cover all AIFMs
managing or marketing AIFs which do not currently require
authorisation under the UCITS Directive in the following situations:
2 Alternative Investment Fund Managers Directive implemented into Belgian law
• in relation to EU AIFMs: all AIFs managed by them (whether or not
EU based and whether or not marketed to EU investors)
• in relation to non-EU AIFMs: all EU AIFs managed by them (whether
or not marketed to EU investors) and all non-EU AIFs managed by
them (but only if marketed to EU investors)
In addition, there are de minimis exemptions for AIFMs that manage
AIFs with aggregate assets (including those acquired through
leverage) not exceeding EUR 100 million (the so-called hedge
exemption) and AIFMs that manage AIFs with aggregate assets not
exceeding EUR 500 million, so long as the AIFs are unleveraged and
grant no redemption rights to investors which are exercisable in the
first five years (the so-called private equity exemption).
Exempt AIFMs are still required to register with the Belgian Financial
Services and Markets Authority ("FSMA") and to comply with certain
disclosure requirements on investment strategy and activities on an
ongoing basis, so as to allow the FSMA to effectively monitor
systemic risk. They may also at any time opt-in under the Directive in
which case the AIFM can benefit from the "European Passport".
Impact on the Belgian fund industry
Before the introduction of the Directive, the Belgian legal fundframework
was exclusively laid down in the act of 3 August 2012 on
certain forms of undertakings for collective investment (the "UCITS
Act"). With the implementation of the AIFM-act, only UCITS (including
UCITS managers) and securisation vehicles (which are excluded from
the AIFM-act) remain regulated by the UCITS Act. All other Belgian
types of open-end and closed-end undertakings for collective
investment, such as the non-UCITS bevek/sicav and bevak/sicafi
continue to exist, but are now regulated by the AIFM-act, because -
with some exceptions - they can be considered an AIF.
Public AIFs and AIFMs managing public AIFs must, in addition to the
rules imposed by the Directive, comply with a broad set of Belgianspecific
rules and regulations.
AIFs which do not offer their units to retail investors can still opt for
the form of an "institutional" or "private" AIF (which also has certain
tax benefits). However, whether they opt for such statute or not, they
will have to comply with the harmonized AIFM rules either way,
resulting in a higher regulatory burden for non-public AIFs than
Some key provisions of the Directive and the AIFM-act
Disclosure and Transparency
AIFMs are subject to a series of enhanced disclosure requirements in
relation to major holdings and control positions in unlisted companies.
When an AIF acquires shares, the AIFM managing such an AIF must
make notifications to the FSMA, the portfolio company, its
shareholders and, its employees or employee representatives any
time when the proportion of shares being held by the AIF reaches,
3 Alternative Investment Fund Managers Directive implemented into Belgian law
exceeds or drops below certain thresholds (10%, 20%, 30%, 50% and
75%), subject to exceptions for small or medium enterprises. If the
threshold reaches 50% or more, the AIFM must make additional
disclosures concerning the future intentions of the AIFM regarding the
company and the likely repercussions on employment.
Conflicts of Interest
The Directive and the AIFM-act create a regulatory framework related
to conflicts of interest. AIFMs are required to implement a suitable
structure and organizational procedures to minimise such conflicts of
interest. Conflicts also need to be disclosed to investors to prevent
them from adversely affecting the interests of the AIF and its investors
and to ensure that all the AIFs managed by a given AIFM are fairly
An AIFM will be required to maintain a minimum level of regulatory
capital. This must be at least EUR 125,000, and, if assets under
management exceed a EUR 250 million threshold, the AIFM must
provide an additional amount of own funds equal to 0.02% of the
amount by which the portfolios of the AIFM exceeds EUR 250 million
but the required total of the initial capital and the additional amount
shall not, however, exceed EUR 10 million. Self-managed AIFs must
have an initial capital of at least EUR 300,000.
The Directive and the AIFM-act prohibit asset stripping in portfolio
companies controlled (solely or jointly) by the AIF during the first two
years of ownership. This translates into an effective ban on
distributions, capital reductions, share redemptions or buy-backs in or
by the portfolio company. An AIFM must not vote to allow such
actions and must use its best efforts to ensure that these and similar
events do not occur.
The depositary rules in the Directive and the AIFM-act specify that all
AIFMs are required to appoint a (regulated) depositary to hold the
AIF’s assets. The AIFM may not act as a depositary for its own AIFs.
The liability imposed upon depositaries is onerous and has two main
strands, both aimed at preventing depositaries from evading what is
effectively a “strict liability” standard.
The first provision regulates the delegation of a depositary’s services
such that, prior to a depositary delegating its functions to a third party,
it must ensure that a right of claim is established between the AIF or
AIFM and the third party, or that the depositary can make a claim
against the third party on the AIF’s or AIFM’s behalf.
The second provision provides that depositaries are liable for losses
of financial instruments owned by an AIF and held by the depositary.
A depositary will be liable for such losses unless it demonstrates that
4 Alternative Investment Fund Managers Directive implemented into Belgian law
the loss was a result of an external event beyond its reasonable
control, the consequences of which would have been unavoidable
regardless of its reasonable efforts.
AIFMs managing one or more AIFs employing leverage on a
substantial basis are required to disclose to the FSMA information on
the overall level of leverage employed by each AIF they manage, the
nature of leverage and the reuse of assets under leveraging
arrangements. Further, there are a broad range of provisions to keep
leverage under control and to prevent it from causing systemic risks.
AIFMs are required to put in place remuneration policies and
practises for those categories of staff whose professional activities
have a material impact on the risk profile of the AIF they manage,
including senior management, risk takers, control functions and any
employee with an equivalent remuneration package.
Assessment for rewards must be based on longer-term performance
and a framework appropriate to the life-cycle of the AIF. Guaranteed
variable pay should be the exception rather than the rule and must be
limited only to new staff in their first year. In addition, a substantial
proportion of the variable remuneration component (at least 40% and
in some cases up to 60%) must be deferred over an appropriate
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