Directive 2011/ 61/EU on Alternative Investment Fund Managers (AIFMD) must be implemented by EU member states by 22 July 2013. AIFMD is supplemented by a delegated regulation (AIFMD Regulation). AIFMD regulates the activities of Alternative Investment Fund Managers (AIFMs) and their Alternative Investment Funds (AIFs). AIFMD sets out detailed requirements for both AIFs and AIFMs which are not located in EU member states but to which some or all of the provisions of the AIFMD may still apply.

Overview

Although AIFMD is a European Directive primarily aimed at regulating EU AIFMs, it also captures Non EU AIFMs managing and/or marketing EU AIFs and Non EU AIFs and EU AIFMs managing and/or marketing Non EU AIFs. The provisions of the AIFMD in respect of third countries are largely reliant on cooperation arrangements and procedures being in place between the relevant competent authorities.

The requirements differ depending on:

  • the nature of the activity involved i.e managing or marketing;
  • where the activity is to be carried out.

While the AIFMD provides a passport to EU AIFMs managing or marketing EU AIFs, that passport will not be available to EU AIFMs marketing Non EU AIFs or to Non EU AIFMs managing and/or marketing EU or Non EU AIFs until at least 2015. Until that date any marketing is on the basis of existing private placement regimes which may be phased out from 2018.

EU AIFM appointed to a Non EU AIF

An EU AIFM can manage a Non EU AIF provided:

  • the EU AIFM complies with all provisions of the AIFMD with the exception of the requirement for a depositary to be appointed to the Non EU AIF and to produce an annual report;
  • there are cooperation arrangements in place between the competent authority of the AIFM and the supervisory authority of the Non EU AIF to ensure efficient exchange of information.

An EU AIFM can market a Non EU AIF to professional investors in an EU member state without a passport on a private placement basis only until 2015 provided:

  • the EU AIFM complies with all provisions of the AIFMD with the exception of the requirement to ensure that a depositary entity is appointed;
  • the EU AIFM ensures that an entity is appointed to the Non EU AIF to carry out the oversight and monitoring activities usually carried out by the depositary;
  • there are cooperation arrangements in place between the competent authority of the EU AIFM and the supervisory authority of the Non EU AIF to ensure efficient exchange of information;
  • the country of establishment of the Non EU AIF is not a country which has been designated by FATF as non-cooperative and has signed a tax cooperation agreement with the member state of the EU AIFM to ensure effective exchange of information on tax matters.

Non EU AIFM appointed to EU AIF

It is not possible for a Non EU AIFM to manage an EU AIF until 2015.

A Non EU AIFM can market an EU AIF to professional investors in an EU member state without a passport on a private placement basis only until 2015 provided:

  • the Non EU AIFM complies with all the transparency obligations in the AIFMD and where relevant the more detailed disclosure in respect of composition of portfolio and asset stripping;
  • there are cooperation arrangements in place between the competent authorities of the EU member states where the EU AIFs are marketed, the competent authority of the EU AIFs and the supervisory authority of the Non EU AIFM to ensure efficient exchange of information;
  • the country of establishment of the Non EU AIFM is not a country which has been designated by FATF as non-cooperative;
  • EU member states are permitted to impose stricter rules on the Non EU AIFM marketing the EU AIF in its territory.

Non EU AIFM appointed to Non EU AIF

The requirements of the AIFMD are only relevant where the Non EU AIFM is marketing a Non EU AIF in an EU member state.

A Non EU AIFM can market a Non EU AIF to professional investors in an EU member state without a passport on a private placement basis only until 2015 provided:

  • the Non EU AIFM complies with all the transparency obligations in the AIFMD and where relevant the more detailed disclosure in respect of composition of portfolio and asset stripping;
  • there are cooperation arrangements in place between the competent authorities of the EU member states where the Non EU AIFs are marketed, the competent authority of the Non EU AIFs and the supervisory authority of the Non EU AIFM to ensure efficient exchange of information;
  • the country of establishment of the Non EU AIFM is not a country which has been designated by FATF as non-cooperative;
  • EU member states are permitted to impose stricter rules on the Non EU AIFM marketing the EU AIF in its territory. 

Significance of 2015

The provisions of the AIFMD which (a) permit the passport to be used by an EU AIFM to market a Non EU AIF, (b) permit a Non EU AIFM to manage an EU AIF and (c) permit a Non EU AIFM to use the passport to market an EU AIF or Non EU AIF, do not come into force until such time as ESMA has issued positive advice and an opinion to the European Parliament, the Commission and the Council. The Commission will then determine that the provisions become applicable specifying the date for all EU member states. The AIFMD prescribes that this advice and opinion will be positive where no significant obstacles regarding investor protection, market disruption, competition and the monitoring of systemic risk impeding the application of these provisions has been identified.

Marketing to Retail Investors

EU member states have the discretion to permit EU and Non EU AIFMS to market EU and Non EU AIFs in their territories on a domestic or cross border basis and while they can impose stricter or additional requirements than imposed on AIFs marketed to professional investors, they cannot impose stricter or additional requirements on EU AIFs marketing on a cross border basis to retail investors than are imposed on domestic AIFs. EU member states which do permit this must inform the Commission and ESMA by 22 July 2014 of (a) the type of AIFS they permit and (b) any additional requirements they have imposed on such AIFs.

Private Placement Regimes

Until at least 2015, it will be possible (and in some cases it shall only be possible) to market AIFs in EU member states on the basis of the private placement regimes in place in the relevant EU member state. The AIFMD provides that in 2018, ESMA will provide an opinion to the European Parliament, the Commission and the Council on the functioning and operation of the passport and provide advice on the termination of national private placement regimes. The AIFMD prescribes that this advice and opinion will be based on a number of factors including take up of the passport, any problems in respect of cooperation between regulatory authorities and any investor protection or investor access issues.