On 22 July 2013 the Alternative Investment Fund Managers Directive (2011/61/EU) (the "AIFMD") will enter into force in the Netherlands. The AIFMD will be implemented in the Dutch Act on Financial Supervision (Wet op het financieel toezicht). As the Dutch legislator rightfully assessed, the name of the AIFMD is somewhat misleading, because the funds that fall within the scope of the AIFMD are all but alternative. A large majority of investment funds in the Netherlands fall within the scope of the AIFMD. Many investment funds that are currently unregulated, their administrators and their managers will be affected.
In this newsletter we will briefly set out the scope, the implications and the transitional time frame of the AIFMD.
Scope of the AIFMD
Unlike previous directives related to investment funds, the AIFMD predominantly targets the managers (an alternative investment fund manager, hereinafter: "AIFM") of investment funds (alternative investment fund, hereinafter: "AIF"). The AIFMD applies to:
- AIFMs having their statutory seat in a member state of the European Union (the "Union") irrespective of the statutory seat of the managed AIF ("EU AIFM");
- AIFMs having their statutory seat outside the Union ("non-EU AIFM") that manage one or more AIFs that have their statutory seat within the Union ("EU AIF"); and
- non-EU AIFMs that manage one or more AIFs that have their statutory seat outside the Union ("non-EU AIF") that offer units or shares in such non-EU AIF to investors in the Union.
Please note that under the AIFMD certain entities do not qualify as AIFs (such as family office vehicles which invest the private wealth of investors without raising external capital). Furthermore, the AIFMD contains exemptions in respect of holding companies, institutions for occupational retirement provision, governments and bodies or institutions which manage funds supporting social security and pension systems, employee participation schemes, employee savings schemes, supranational institutions, central banks, securitization special purpose vehicles and group funds where the only investors in the AIF are the AIFM or entities belonging to the same group as the AIFM.
Below we will set out what types of funds qualify as an AIF and which activities qualify as management activities.
Definition of an AIF
The definition of AIF is very broad. AIFs are collective investment undertakings, including compartments thereof, which raise 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. So-called UCITS do not qualify as an AIF. The legal form of an AIF, whether an AIF is open-ended or closed-ended and whether or not an AIF has been admitted to trading on a regulated market is irrelevant for the applicability of the AIFMD.
Management activities entail at least portfolio management and risk management. AIFMs may only perform a limited range of additional activities. The AIFMD targets both external AIFMs (a separate legal entity) and internal AIFMs (internally managed AIFs, where the AIF itself will be appointed as AIFM). External AIFMs can manage more than one AIF.
Implications of applicability of the AIFMD
To manage an AIF within the Union or to market shares or units within the Union, AIFMs must in principle be licensed. When applying for such license with the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten), the AIFM must substantiate that the relevant requirements for such license will be met. Such requirements include, inter alia, requirements regarding the policy makers of the AIFM, the own funds of the AIFM, the organisation of the AIFM and the independent depositary.
A licensed AIFM must continuously meet a large number of requirements related to, inter alia, capital, management, remuneration, conflicts of interests, risk management, liquidity management, valuations, disclosure towards supervisors and investors (including a prospectus obligation), delegation, appointment of a depositary and the use of leverage finance.
Authorised EU AIFMs are allowed to market shares or units throughout the Union (after notification to the relevant supervisor). With regard to non-EU AIFs this applies only if (i) such non-EU AIF is established in a country which is not listed as a non-cooperative country or territory by the Financial Action Task Force; (ii) a cooperation arrangement is in place between the relevant Union supervisor and the local supervisory authority of the state in which the non-EU AIF is established that enables such Union supervisor to exercise its supervisory duties; and (iii) the country in which the non-EU AIF is established has concluded an agreement with (a) the Union member state in which the AIFM is established and (b) with each Union member state in which units or shares will be marketed.
Non-EU AIFMs require prior authorisation from the Netherlands Authority for the Financial Markets to manage EU AIFs or to manage non-EU AIFs while marketing units or shares of such non-EU AIF in the Union. One of the conditions to obtain such authorisation is that the non-EU AIFM has a legal representative in a relevant Union member state (a so-called 'member state of reference'). Such representative will act as a contact between the relevant supervisor and the AIFM.
Despite the fact that under the AIFMD AIFMs are in principle only allowed to market to professional investors, Dutch law also allows the marketing to retail clients. Additional requirements must be complied with when marketing to retail clients. We are happy to inform you of such additional requirements.
De minimis regime
When the AIFMD comes into effect on 22 July 2013, the existing Dutch exceptions/exemptions to the license requirement will in principle no longer be available, instead a lighter regime will be introduced for:
- AIFMs where the cumulative assets of the AIFs under management fall below a threshold of EUR 100 million; and
- AIFMs that only manage unleveraged AIFs that do not grant investors redemption rights during a period of five years where the cumulative assets of the AIFs under management fall below a threshold of EUR 500 million.
Provided that such AIFMs:
- only offer units to professional investors; or
offer units to non-professional investors, whereas:
- the offer is restricted to a maximum of 150 persons;
- the units can only be obtained against a counter value of at least EUR 100,000 per investor: or
- the units have a nominal value of at least EUR 100,000 each.
AIFMs that qualify for this lighter regime are not subject to the license requirement. Such AIFMs must, however, notify the relevant supervisor in their home member state and should, inter alia, provide such supervisor with certain information. Please note that AIFMs that qualify for the lighter regime, may choose to opt-in to the full AIFMD regime.
Third country policy
In respect of non-EU AIFMs implementation will occur in two stages. The first stage will be the application of the harmonised passporting regime to non-EU AIFMs. Such harmonised regime is envisaged to become available as of mid 2015. The second stage consists of the abolishment of the national regimes of the Union member states. This is envisaged to occur mid 2018. Until the second stage enters into force, Union member states are authorised to apply their own national regime in respect of AIFMs.
The Dutch legislator has indicated that until the second stage will enter into force, it will continue its present policy in respect of investment institutions from third countries (i.e. non-EU countries) that have a comparable level of supervision as the Netherlands (such countries being Guernsey, Jersey and the United States). AIFMs established in such countries are exempt from the licensing obligation until the second stage enters into force (i.e. mid 2018).
AIFMs established in other non-EU countries should obtain a license if they market to the Netherlands or manage an AIF in the Netherlands, unless:
- they offer units to qualified investors only;
- the country of establishment of the AIFM is not listed as a non-cooperative country or territory by the Financial Action Task Force; and
- a cooperation arrangement is in place between the Netherlands Authority for the Financial Markets and the local supervisory authority of the state in which the AIFM is established that enables the Netherlands Authority for the Financial Markets to exercise its supervisory duties.
Exempted AIFMs must comply with certain information requirements vis-à-vis the Dutch Central Bank (De Nederlandsche Bank) and the investors. A prospectus must be provided by the AIFM to the investors and an annual report must be made available for the AIF.
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