The Alternative Investment Fund Managers Directive (AIFMD) has now been fully operational for a year. It therefore seems like a good moment to pause and take stock of what we have learnt in that time about the practical operation of AIFMD and share some of the trends that are beginning to emerge.

The first anniversary of full AIFMD implementation may also be a good time to review, and if necessary, revise and update your AIFMD compliance policies and procedures, to ensure that they still accurately reflect your business model and your size of assets under management (AUM). We would be delighted to discuss with you any of the issues raised in this briefing, and how they may impact on your business.

Small AIFM regime – pros and cons

A small AIFM is subject to less compliance and reporting requirements than a full-scope AIFM. Small AIFMs are not required to appoint a depositary to their AIFs, and also do not have to apply the AIFMD’s requirements to delegates or agents. However, we are seeing some firms choosing to apply for full status even if their AUM has not yet reached the relevant threshold. The main reason for this is that some EEA jurisdictions outside the UK do not fully recognise the small AIFM regime (e.g. France and the Netherlands). As a result, small AIFMs can find it difficult to market their funds across the EEA.

Joint ventures falling outside the scope of AIFMD

Although there is no express exemption set out in AIFMD, JVs are not intended to be within the scope of AIFMD. In accordance with the FCA’s pragmatic guidance in this area, we are seeing a number of JVs structured as limited partnerships that fall outside the AIF definition. The reason for this is that an increasing number of joint venture partners are willing to take joint ownership and management of the general partner vehicle.

REITs and the listed fund sector – in or out of scope?

There is no presumption either way as to whether or not a REIT, or any other listed fund structure, is an AIF. A number of listed funds have come to market in the run-up to implementation of AIFMD and subsequently. There does not yet appear to be a consensus of approach on how AIFMD will apply, which reflects the varied nature of the structures and their underlying business models. Whilst some listed fund structures are outside the scope of AIFMD (either because they are trading businesses or rely on the holding company exclusions), others are identifying themselves as in-scope. Of those that are in-scope, some are internally managed and others have appointed an external manager.

AIFMD marketing using the passport – operational inconsistencies

Although the AIFMD marketing passport is working well in general, there are three main areas of operational inconsistency that are causing practical issues:

  • Firstly, some member states’ regulators are charging fees for marketing notification and annual fees: for instance, France charges an initial and annual fee of €2,000 per AIF being marketed, and Luxembourg a minimum fee of €2,650 on a similar basis. Criticisms include that the fees can be disproportionately high, are not disclosed in advance, and that there is an opaque system for payment, which leads to distortion and fragmentation of the market.
  • Secondly, some member states have imposed a requirement for additional service provider appointments. For instance, Spain requires a local entity responsible for various regulated matters, which seems a disproportionate obligation especially in the context of professional investors. France recently removed the requirement for non-French EEA AIFMs to appoint a French centralising agent (although this is still required where the AIFMD passport is not available).
  • Thirdly, regulators are reviewing and raising queries on documents, and access to their market is conditional on the answers to these additional questions being provided. This impacts on timing, cost, and the ability to get funds to market.

Marketing using the national private placement rules (“NPPRs”) – choose with care

AIFMD only sets out minimum requirements for NPPRs. Different member states have adopted a variety of approaches. For instance, in some member states, operation of the NPPRs is straightforward (e.g. the UK, Ireland, Luxembourg and the Netherlands); and in others there are moderate additional requirements (e.g. Denmark, Finland, Belgium and Sweden). Whilst in certain member states marketing using NPPRs is burdensome or not possible (e.g. Germany, Austria, France, Spain and Italy).

Whilst the industry remains optimistic that ESMA will issue its recommendations on opening up marketing passports to a wider range of funds by 22 July, we still do not know what the outcome of this consultation will be or the timetable for any changes that are to be implemented. It is hoped that any changes made will make marketing simpler for non-EEA AIFs, but the fear is that it could simply add yet another layer of complexity.

Reverse solicitation

As the system beds down and AIFMs bring new products to market, market participants are finding the limitations of reverse solicitation. Whilst it was never expected to be an easy option, managers are finding that it is a lot more difficult credibly to rely on reverse solicitations. Many EEA jurisdictions are taking a very restrictive approach to the interpretation of when an investment can be treated as having been initiated on a reverse solicitation basis.

For instance, in Sweden and Denmark, the circumstances when reverse solicitation can be successfully achieved are limited: in these member states, activities such as distributing a teaser document or a draft information memorandum to professional investors can comprise marketing, and therefore first require that AIFM to have a marketing passport.


When launching new structures, the extra time to notify the FCA (or relevant home member state regulator) and/or obtain marketing passports or NPPR approvals should not be underestimated. These extra steps need to be factored into your launch timetables. Sales teams are also realising that it is increasingly important to work out where the target market is at an earlier stage in the process than was the case prior to AIFMD.

Depositaries – holdings of units/ shares/ interests in subsidiary structures by the AIF should not be treated as “custodial assets”

Holdings in subsidiary vehicles or underlying collective investment schemes used as asset-holding structures in the name of the AIF may not need to be treated as custodial assets for the purposes of the AIFMD depositary function. The depositary’s obligations for “other” (non-custodial) assets relate to verification and record-keeping only.

Depositaries continue to await the outcome of ESMA’s consultation on asset segregation by sub-custodians and delegates.


The valuation function can be performed by either an external valuer, independent from the AIF/ AIFM, or by the AIFM itself (provided various safeguards are in place). There may be cases where a third party supplies valuation data or information to the AIFM, who then produces its own valuation. In these cases and where there is no nexus between the AIF itself and the valuer, the AIFM itself may be considered the valuer and have to comply with AIFMD accordingly. The structure and substance will need to be examined in each case. This will often be a commercial point for third party valuers, as to whether or not it is liable to the AIFM under AIFMD. FCA guidance is expected to clarify this and some other issues on valuation.