The Alternative Investment Fund Managers Directive (AIFMD) came into force on 21 July 2011. Implementation by Member States is required by 22 July 2013. Compliance with the Directive by EU managers is required following implementation, although there is a one year grace period (until 23 July 2014) for EU managers to obtain authorisation as an “AIFM” under the Directive.

The Commission has still not published the final Level 2 Regulations, which are the detailed implementing measures underling various parts of the Directive. The Level 2 Regulations will have direct effect in each Member State.

The FSA has published a discussion paper and will issue a more detailed consultation paper, followed by draft regulation, later this autumn.

The Directive affects all EU managers of funds other than UCITS funds, and all non-EU managers of funds seeking to market in the EU (regardless of whether the fund is based in or outside the EU).

An EU manager may not manage an alternative investment fund unless it has been authorised under the Directive. A manager must obtain authorisation as an “AIFM”, which it may not hold concurrently with a MiFID authorisation. An authorised AIFM of a fund established in the EU may market the fund to professional investors in the EU on the basis of the EU passport. The EU passport may be extended in 2015 to non-EU managers and non-EU funds. The Directive allows marketing under private placement regimes in parallel to the EU marketing passport, to the extent such regimes continue to exist. Private placement is not available to EU managers of EU funds.

An authorised AIFM will need to observe restrictions on delegation of its functions to third parties, and other conduct of business rules, such as liquidity and risk management. It will be responsible for ensuring compliance by the funds which it manages of the rules relating to appointment of a depositary and valuer. There are rules relating to remuneration policies and disclosure of aggregate remuneration amounts.

Timing and recommended actions: EU managers are required to be authorised by 23 July 2014. Depending on timely implementation by Member States, the EU marketing passport for EU managers of EU funds will become available 22 July 2013. There is no requirement for a non-EU manager to be authorised under the Directive from 2013. If the EU marketing passport is extended in 2015, a non-EU manager will need to be authorised to manage an EU fund, irrespective of whether the fund is marketed in the EU or whether EU investors invest in the fund. Until the EU marketing passport is extended, there is no benefit for a non-EU manager to be authorised, and no framework for it to be.

AIFMD will have a substantial impact on authorisation of fund managers, their structure, their operations and the manner in which their funds are run. Firms should consider whether they are in scope, which entity should be authorised as the AIFM, the required new compliance policies and procedures and the required additional regulatory capital. Firms will need to consider whether they want to use the passport and the additional compliance burden involved.

Following publication of the Level 2 Regulations, Dechert will issue a detailed client guide to AIFMD. AIMA is also planning to produce a manual for fund managers, which should be available early next year.