The Alternative Investment Fund Managers Directive

The Alternative Investment Fund Managers Directive (the
“AIFMD”) is a response to difficulties in the financial markets
and calls for greater regulation of alternative investment
funds (“AIFs”) and alternative investment fund managers
(“AIFMs”). The aim of the AIFMD is to implement a coordinated
and stringent regulatory framework for AIFMs across
the European Union (the “EU”).
This Commentary sets out the key features of the AIFMD and
considers its impact on the AIFMs that fall within its scope.
Throughout the Commentary, Action Points highlight suggestions
as to the steps AIFMs should be taking in relation
to particular aspects of the AIFMD.
BACKGROUND AND IMPLEMENTATION
The finalisation of the AIFMD came after a protracted period
of negotiation and consultation which encompassed several
draft versions of the AIFMD and the extensive “trialogue”
procedure involving the European Commission, European
Parliament and the Council of the EU. The result was a compromise
document which lacks coherence and clarity.
Eventually, the AIFMD was adopted by the European
Parliament on 11 November 2010 and by the Council of the
EU on 27 May 2011.
The final version of the adopted text was published in the
Official Journal of the European Union on 1 July 2011, following
which the AIFMD came into force on 21 July 2011. EU
Member States were required to implement the AIFMD by
22 July 2013. That being said, 15 of the 27 EU Member States
to which this deadline applied failed to comply with it.
On 22 March 2013, the AIFMD delegated Regulation
(Regulation 231/2013) was published in the Official Journal of
the European Union. The delegated Regulation entered into
force 20 days after publication (11 April 2013) and applied
from 22 July 2013. The delegated Regulation supplements
the AIFMD in respect of exemptions, general operating conditions,
depositaries, leverage, transparency and supervision,
amongst other areas.
The AIFMD provides for a substantial secondary law-making
procedure which has been in process for over two years,
together with the issue of significant guidance level materials.
Guidance, technical standards and consultation papers
have been issued by the European Securities and Markets
Authority (“ESMA”), the UK’s Financial Services Authority
(“FSA”) (now the Financial Conduct Authority (“FCA”), as
described below) and Her Majesty’s Treasury (the “Treasury”),
along with the relevant authorities in other jurisdictions.
On 1 April 2013, the FSA was abolished and replaced by
a new regulatory regime comprising the Financial Policy
Committee, the Prudential Regulation Authority and the
Financial Conduct Authority (“FCA”). The FCA has taken
over responsibility for matters relating to the AIFMD. Prior
to 1 April, the FSA published a discussion paper on implementation
of the AIFMD (DP12/1), together with two formal
consultation papers (CP12/32 and CP13/9). The consultation
papers provide further guidance on the implementation of
the AIFMD; operating requirements for full-scope and subthreshold
alternative investment fund managers; prudential
requirements; consumer redress; depositaries; marketing;
and fees. In June, the FCA published Policy Statement
(PS13/5) “Implementation of the Alternative Investment Fund
Managers Directive”. The Policy Statement provides additional
and revised guidance covering implementation and
scope, operating requirements, prudential requirements,
consumer redress, depositaries, remuneration and marketing
(as discussed further below) and transposes significant
content into the FCA’s Handbook of Guidance and Rules.
Furthermore, now that the implementation date has passed,
the FCA has adopted the practice of providing advice and
clarifications through its new AIFMD portal on the FCA
website. Recently, the FCA published its consultation on
its intended application of the AIFMD remuneration code
(6 September 2013).
The Treasury has been responsible for transposing those
parts of the AIFMD that require changes to primary and
secondary legislation in the UK (including the Financial
Services and Markets Act 2000 and the Financial Services
and Markets Act 2000 (Regulated Activities) Order 2001).
In May 2013, the Treasury published two responses to its
consultation process on the transposition of the AIFMD
accompanied by an amended version of the UK regulations
on the AIFMD (The Alternative Investment Fund Managers
Regulations 2013). The responses provide assistance on a
number of areas including, in particular, clarification on the
scope of the marketing provisions and confirmation that
the transitional period (discussed further below) will apply
to both EU and third country AIFMs. The Treasury has also
published question and answer materials on the transposition
of the AIFMD.
3
The official translation of the final version of ESMA’s guidance
on the key concepts of the AIFMD (ESMA/2013/611) was
published on 14 August 2013 and took effect two months
after this date (14 October 2013). The final guidelines follow
the report which was published in May 2013 on the related
consultation process which revolved around a consultation
paper published in December 2012. The final guidelines are
useful for AIFMs and regulatory authorities and explain the
concepts relating to AIFs (including the meaning of collective
investment undertaking, defined investment policy and
capital raising, amongst others). ESMA has also recently
published (on 21 August 2013) an opinion on technical standards
in respect of types of AIFM which is designed to ensure
consistent application of the AIFMD. In addition, at the start
of October 2013, ESMA published final guidelines on the
reporting obligations for AIFMs requiring regular reporting
of certain information to national supervisors (please see
further details in the disclosure and transparency section).
It is also worth noting that in March 2013 the European
Commission published a webpage containing its answers to
questions submitted to it on the AIFMD. The topics covered
include: passporting; master AIFs and feeder AIFs; private
equity; scope and exemptions; transitional provisions; and
depositaries. On a cautionary note, fund managers should
think carefully about using the question and answer portal
as there is potential for this informal process to result in the
Commission providing binding answers which might not be
consistent with application of the AIFMD itself.
The developments described above have improved understanding
of the AIFMD and the manner in which it will be
implemented. As such, the detail that follows incorporates
relevant secondary material, where appropriate.
COVERAGE AND RECEPTION
The AIFMD generated considerable debate during its finalisation
and it has consistently attracted disparaging reviews
from certain parties, not least because it is regarded in
some quarters as a politically motivated attack on hedge
funds and private equity funds. Unsurprisingly, the British
Venture Capital Association described the AIFMD as manifestly
unfair and bad for British business. The FSA (as it
was) criticised the AIFMD for adopting a “one size fits all”
approach to market regulation and this criticism has been
echoed by the Investment Management Association.
On the other hand, supporters of the AIFMD have argued
that improved levels of transparency and supervision will
provide better protection for investors from the riskier
investment strategies employed by AIFMs. Furthermore, the
AIFMD aims to develop a single EU market for AIFs (by way
of the marketing passport—see below) which would alleviate
the current complexities of complying with the different
marketing regimes in each EU Member State.
APPLICATION AND SCOPE
Subject to certain exemptions (outlined below), the AIFMD
applies to:
• All EU AIFMs managing EU AIFs or non-EU AIFs (irrespective
of whether they are marketed in the EU);
• Non-EU AIFMs managing EU AIFs (irrespective of
whether they are marketed in the EU); and
• Non-EU AIFMs marketing AIFs (whether EU AIFs or
non-
EU AIFs) within the EU.
The AIFMD thus applies to AIFMs, not directly to AIFs
themselves.
What is an AIFM? An AIFM is any legal person whose regular
business is managing one or more AIFs. “Managing”
for these purposes is broadly defined as providing investment
management services, being portfolio management
or risk management. AIFMs may also undertake administration,
marketing and activities related to the assets of AIFs.
“Activities related to the assets of AIFs” include real estate
administration activities and advice given to undertakings
on capital structure, industrial strategy and related matters,
as well as other services connected to the management of
the AIF and its investments.
What is an AIF? An AIF is any collective investment undertaking
which raises capital from a number of investors
with a view to investing it for the benefit of those investors
according to a defined investment policy. Broadly, all funds
which are not covered by the Directive on Undertakings for
Collective Investment in Transferable Securities (“UCITS”)
may be caught (including direct and indirect real estate
funds), save for those structures specifically carved out or
exempted from the scope of the AIFMD.
4
KEY PROVISIONS
The AIFMD introduces significant obligations and restrictions
on AIFMs relating to operational and compliance matters. A
number of the provisions in the AIFMD have ramifications for
the relationship between AIFMs and their service providers.
The AIFMD also regulates the way in which AIFMs may market
AIFs. The key provisions of the AIFMD are described in
this Commentary. Furthermore, a table setting out the applicability
and requirements of the AIFMD in respect of EU/
non-EU AIFMs managing and/or marketing EU/non-EU AIFs
is included in the Appendix.
AUTHORISATION OF AIFMS AND
TRANSITIONAL ARRANGEMENTS
The long-term aim of the AIFMD is that all firms which fall
within the scope of the AIFMD will eventually be authorised
and regulated by an EU financial services regulator.
The AIFMD provides a one-year transitional period for firms
managing AIFs (and non-EU AIFs marketing AIFs to EU investors)
before 22 July 2013. Such firms will have until July 2014
to comply with the requirements of the AIFMD. Furthermore,
such firms will be permitted to continue their activities in
accordance with the FCA Handbook of Rules and Guidance
applying before 22 July 2013.
However, an EU AIFM wishing to start managing an AIF
(whether an EU AIF or non-EU AIF) or a non-EU AIFM wishing
to start managing an EU AIF or marketing a non-EU AIF to EU
investors after 22 July 2013 may not benefit from this transitional
period and may therefore need to apply for appropriate
authorisation before commencing such activities.
The authorisation requirements under the AIFMD have a
number of practical implications for firms. From a UK perspective,
the FSA’s and the Treasury’s formal consultation
papers have provided some assistance in this area. For
example, a UK AIFM will need to be authorised under Part IV
of the Financial Services and Markets Act 2000 by the FCA
to carry on the new regulated activity of managing an AIF.
Therefore, those firms with an existing permission to carry
on a regulated activity may seek a variation of permission to
allow them to act as an AIFM.
Furthermore, the FSA indicated that a grandfathering process
may be allowed for those firms currently holding
permissions to operate a collective investment scheme
(“CIS”) or to act as a sole director of an open-ended investment
company (“OEIC”). A firm that currently acts as a management
company of a UCITS will already hold a Part IV
permission to establish, operate and wind up a CIS or to
act as sole director of an OEIC. The Treasury has indicated
that all UCITS management companies may be automatically
transferred to the new activity of managing a UCITS.
Where the firm manages AIFs as well, it will be subject to
the same authorisation or variation of permission processes
as any other AIFM. The Treasury has stated that a person
who has the “managing UCITS permission” would not need
permission to operate a CIS to manage a UCITS and that the
activity of being a sole director of an OEIC will be abolished,
as the activities of managing an AIF or a UCITS will replace
it entirely.
The details above confirm that the same firm can manage
both UCITS and AIFs if it holds the necessary authorisations,
so it will be possible for the Part IV permissions of managing
an AIF and managing a UCITS to be held together.
Under the AIFMD, an AIFM and a UCITS management company
may also be permitted to carry out certain other activities
that would otherwise be regulated under The Markets in
Financial Instruments Directive 2004/39/EC (“MiFID”). More
specifically, firms can perform some or all of the services
allowed by Article 6(4) of the AIFMD and Article 6(3) of the
UCITS Directive (essentially activities ancillary to operating
funds and dealing with fund assets). A firm cannot be a
manager of AIFs or UCITS and simultaneously perform the
full range of activities possible under a MiFID authorisation
because AIFMD and MiFID authorisations are mutually exclusive.
In this context, the FCA’s implementation of the AIFMD
distinguishes between Collective Portfolio Management
firms and Collective Portfolio Management Investment firms;
the former being firms that manage AIFs but do not carry
out permitted MiFID services and the latter being firms that
also carry out permitted MiFID services. This distinction has
an impact, in particular, in relation to capital requirements
under the AIFMD.
Firms, especially those which manage real estate funds,
may currently be authorised under the Insurance Mediation
Directive 2002/92/EC (“IMD”) and have permissions to carry
out insurance mediation activities. Unfortunately, no attention
appears to have been given to whether IMD and AIFMD
authorisations are mutually exclusive (as with MiFID and
AIFMD) or potentially complementary (as with UCITS and
5
AIFMD). This is a matter which we hope will be addressed in
what remains of the consultation process, but a logical solution
would be for the FCA to apply limitations to the relevant
permissions to make it clear that any IMD activities should
be carried out within the context of acting as an AIFM rather
than providing a full range of insurance related services.
On a cautionary note in respect of timing, the FCA’s current
position is to recommend that firms seeking a new authorisation
or variation of permission should apply to the FCA
no later than 22 January 2014, in case 6 months is required
to determine the application. Technically, the delegated
Regulation gives the FCA 3 months to determine an application
with the possibility of an extension to 6 months where
the application is materially incomplete. On this basis, an
application will need to be submitted by 22 April 2004. This
appears to contradict the grace period in the delegated
Regulation but reflects the fact that the authorities have
repeatedly commented that firms should be in a position to
comply with the AIFMD by 22 July 2014.
Action Points: AIFMs should have confirmed whether they
can benefit from the transitional provisions and identify
appropriate timings for applications (including new AIFMs
potentially applying under the current regime so as to benefit
from any grandfathering provisions). Furthermore, firms
should consider whether it would be appropriate to apply
for the Part IV permissions necessary to enable them to perform
some or all of the services allowed by Article 6(4) of the
AIFMD and Article 6(3) of the UCITS Directive. Finally, firms
which may be intending to manage AIFs and also engage in
a broad range of MiFID activities should be aware that structural
changes will be required to facilitate such arrangements,
given that AIFMD and broader MiFID authorisations
are mutually exclusive.
EXEMPTIONS
These exemptions may be helpful for managers of small
real estate, venture capital, hedge and private equity funds,
and closed ended funds which are fully invested or coming
towards the end of their lifespan.
There is a partial exemption for:
• AIFMs managing AIFs that have total assets of less than
€100 million; or
• AIFMs managing AIFs that have total assets of less than
€500 million, provided (i) the AIFs are not “leveraged”
and (ii) no redemption rights exist during a period of five
years following the date of initial investment in each AIF.
For the purposes of the AIFMD, “leverage” is broadly defined
to include any method by which an AIFM increases the
exposure of an AIF it manages, whether through borrowing
of cash or securities, or leverage embedded in derivative
positions, or by any other means. There is some uncertainty
as to whether borrowing by a special purpose vehicle
owned by an AIF will constitute “leverage” of the AIF for
these purposes.
The AIFMD permits Member States to establish a de minimis
registration regime for these exempt sub-threshold
AIFMs, requiring them to register with, and report annually
to, regulators but without requiring full AIFMD authorisation.
Sub-threshold AIFMs also have the right to opt-in to
full authorisation under the AIFMD in order to benefit from
the AIFMD marketing passport regime. Where the applicable
thresholds are exceeded, the AIFM must decide
whether such situation is temporary (i.e. unlikely to exceed
the threshold for more than three months). If the situation is
temporary, the AIFM is able to maintain its registration-only
status. However, if the situation is not temporary, the AIFM
must seek full AIFMD authorisation within 30 calendar days.
It should be noted that Member States have the option of
imposing additional requirements on sub-threshold AIFMs.
In addition to the partial exemption for AIFMs managing small
AIFs, the AIFMD’s transitional provisions carve out of its scope
AIFMs that solely manage closed-ended AIFs which either:
• Do not make further investments after 22 July 2013; or
• Have a lifespan which will expire by 22 July 2016 and
which closed their subscription period before the AIFMD
came into force (21 July 2011).
An AIFM seeking to make use of the second option will
need to produce annual reports for its AIFs and comply with
AIFMD requirements for AIFMs managing AIFs that acquire
substantial stakes in EU companies.
In addition to the exemptions above, the scope of the AIFMD
indicates that investment undertakings which invest the private
wealth of investors without raising external capital do
not fall within the auspices of the AIFMD. This should be
6
of assistance to family offices and others. Furthermore, the
AIFMD will not apply to holding companies (as defined in the
AIFMD) on the understanding that the purpose of this definition
is not to exclude managers of private equity funds, nor
managers of alternative investment funds whose shares are
admitted to trading on a regulated market, from the scope of
the AIFMD. The AIFMD also states that it will not apply to the
management of pension funds, employee participation or
savings schemes, supranational institutions, national central
banks or national, regional or local governments, or bodies
or institutions which manage funds supporting social security
or pension systems, nor to securitisation special purpose
vehicles. The AIFMD recites that it shall also not apply to
insurance contracts and joint ventures (see further below).
The broad definition of an AIF causes some concern regarding
those circumstances where it is not possible to state
with absolute certainty whether a particular structure constitutes
an AIF. As noted above, the AIFMD explicitly excludes
joint ventures from its scope. However, this concept has not
been defined in the AIFMD or by ESMA. For its part, the FCA
has provided guidance on how an AIF can be differentiated
from a joint venture, but it has also cautioned participants
to joint ventures that they will need to review their structural
arrangements against the AIFMD secondary measures
given that joint ventures can have AIF-like aspects (capital
raising, investment policies, external management etc.).
Furthermore, the FCA considers that certain property investment
firms (in particular, real estate investment trusts) may
or may not be covered by the AIFMD, depending on their
exact structure. It seems likely that a case-by-case review
will also be required for such vehicles.
The ESMA opinion on the key concepts of the AIFMD provides
further clarification by setting out the criteria for what
is considered to be a “collective investment undertaking”,
“capital raising”, “defined investment policy” and the “number
of necessary investors”.
For instance, the ESMA guidance indicates that an undertaking
will be a collective investment undertaking under the
AIFMD where it pools together capital raised from investors
and has the purpose of generating a pooled return for its
investors from the pooled risk generated by acquiring, holding
or selling investment assets as opposed to an entity
whose purpose is to manage the underlying assets as part
of a commercial or entrepreneurial activity.
Action Points: Fund managers falling within the scope of the
AIFMD should have reviewed their fund structures to identify
AIFs and the entity which should be properly regarded as
the AIFM.
If, prima facie, the AIFMD does apply, AIFMs should consider
whether an exemption or carve-out could be helpful.
The FCA and the Treasury have indicated that, as well as
adding AIFMD concepts into UK legislation, the UK will maintain
the existing collective investment scheme regime. This
means that it will continue to be necessary to check whether
fund arrangements constitute a CIS under UK law, not least
because of the potential impact on UK marketing activities.
CAPITAL REQUIREMENTS
The capital requirements under the AIFMD are different
depending on whether the AIFM is internally or externally
managing the AIF.
An AIF is internally managed when its governing body elects
not to appoint an external AIFM (such as a corporate fund
which is managed by its governing body). An AIF that is
internally managed will itself be authorised as the AIFM.
Where an AIF is not internally managed, the AIFM is the legal
person appointed by or on behalf of the AIF to be responsible
for managing it (i.e. for providing portfolio management
or risk management services).
Initial Capital Requirement and Own Funds. An internally
managed AIF will be required to maintain initial capital of
€300,000.
An external AIFM will be required to maintain initial capital
of €125,000 and will have to maintain own funds equal to
the higher of:
• One quarter of fixed annual overheads; and
• 0.02 percent of the amount by which the total value of
assets under management exceeds €250 million, subject
to a cap of €10 million (however, up to 50% of this
amount is not required if the AIFM benefits from a guarantee
from a bank or insurer).
7
Additional Requirements. In addition, external AIFMs and
internally managed AIFs must also hold either:
• Appropriate professional indemnity insurance; or
• An amount of own funds to cover potential liability for
professional negligence (being 0.01 percent of the value
of assets under management).
Furthermore, Collective Portfolio Management Investment
firms (being firms that manage AIFs and also carry out permitted
MiFID services), will continue to be subject to ongoing
GENPRU / BIPRU regulatory capital rules and will need to
ensure that their own funds satisfy the higher of the requirements
under the GENPRU / BIPRU regime and the AIFMD
regime.
Items included as initial capital (for example, share capital
and audited profits) may also be included within own
funds for the purposes of meeting capital requirements. For
example, if a firm has fully paid up ordinary share capital of
£250,000, this amount can count both towards meeting the
initial capital and towards meeting the own funds test. The
requirements are not cumulative.
“Initial capital” and “own funds” are defined by reference to
the Capital Requirements Directive (“CRD”). Therefore, any
amendment to the CRD definitions is likely to affect which
items an AIFM will be entitled to include within its initial
capital or own funds. As a general rule, own funds must be
invested in liquid assets or near-liquid / readily convertible
assets and not in speculative positions. This will apply to
all regulatory capital, except the initial capital requirement.
Action Points. AIFMs should assess whether they are internally
or externally managing AIFs and what capital requirements
apply. AIFMs should ensure whether they have
sufficient assets to meet the AIFMD requirements and
decide whether they will use professional indemnity insurance
or additional capital buffers.
GOVERNANCE AND OPERATING CONDITIONS
The AIFMD requires AIFMs to abide by certain general principles
which include, for example: acting in the best interests
of the AIF, the investors and the integrity of the market; acting
honestly and with due skill, care and diligence; treating
investors fairly; and complying with regulatory requirements.
The delegated Regulation clarifies the general duty of AIFMs
to act in the best interests of the AIF, the investors and the
integrity of the market. For example, it stipulates that AIFMs
should apply appropriate policies and procedures to prevent
malpractices such as market timing (taking advantage
of out of date or stale prices for portfolio securities that
impact the calculation of an AIF’s net asset value or buying
and redeeming units of an AIF within a few days, thereby
exploiting the way the AIF calculates its net asset value) or
late trading and establish procedures to ensure the AIF is
managed efficiently to prevent undue cost being charged to
the AIF and its investors.
As a further example, AIFMs need to be aware of their obligation
to act with due skill, care and diligence when appointing
a prime broker or selecting a counterparty. The AIFM should
appoint only entities that are subject to ongoing supervision,
are financially sound (that is, the entity abides by adequate
capital requirements) and have an organisational structure
appropriate to the services to be provided.
AIFMs are also required to manage conflicts of interest and
operate satisfactory risk management and liquidity management
systems.
The delegated Regulation stipulates that it is important to
establish a conflicts of interest policy for the AIFM which
identifies situations in which activities carried out by the
AIFM could constitute conflicts of interest that may lead to
potential risks of damage to the AIF’s interests or the interests
of its investors. In so doing, the AIFM should consider all
relevant activities, including portfolio management and the
activities of its delegates, external valuer or counterparties.
For any conflicts of interest which are identified, there must
be a framework according to which such conflicts can be
managed and disclosed.
One of the central components of a risk management system,
according to the delegated Regulation, is a permanent
management function which has a primary role in shaping
the risk management policy and risk monitoring/measuring
to ensure that risk levels are appropriate. Given the importance
of this function, it is vital that it has the necessary
authority and access to all relevant information and to senior
management.
As with risk management, AIFMs should be able to demonstrate
that appropriate and effective liquidity management
8
policies and procedures are in place to prevent difficulties
associated with illiquid assets, valuation issues and redemption
requests. By way of example, such procedures could
include annual stress tests to simulate liquidity shortages or
atypical redemption requests.
Generally, AIFMs should establish a well-documented
organisational structure that clearly assigns responsibilities,
defines control mechanisms and ensures appropriate
information flow between all relevant parties. The delegated
Regulation highlights the importance of adopting a proportionate
approach when calibrating the requisite policies
and procedures to the size and complexity of the AIFM’s
business.
Action Points. AIFMs should ensure that policies and procedures
are compliant with the AIFMD requirements and consider
carrying out systems audits and simulations to identify
any areas requiring further attention. AIFMs should review
the capacity and independence of the compliance, audit
and risk management functions, and consider any necessary
improvements. Proportionate policy documentation
should be in place for AIFMD compliance.
REMUNERATION
The remuneration requirements in the AIFMD apply to all
AIFMs authorised under the AIFMD and stipulate remuneration
policies and practices which promote effective risk
management for categories of staff whose professional
activities have a material impact on the risk profiles of the
AIFs they manage. These categories include senior management,
risk takers and control functions (as well as any
employee receiving total remuneration that takes him or her
into the same remuneration bracket as senior management
and risk takers).
ESMA published its final report setting out guidelines for the
remuneration of AIFMs under the AIFMD on 11 February 2013.
ESMA’s report clarifies which staff will be regarded as falling
within the categories described above (and will therefore be
“Identified Staff” for the purposes of the AIFMD). ESMA also
confirmed that the general remuneration requirements need
only be applied to Identified Staff but, in any case, strongly
recommended voluntary application to all AIFM staff.
The remuneration requirements apply to:
• All forms of payments or benefits paid by the AIFM;
• Any amount paid by the AIF itself, including carried interest;
and
• Any transfer of units or shares of the AIF,
in exchange for professional services rendered by the AIFM
Identified Staff.
The cornerstone of the remuneration requirements is that
an AIFM establishes a consistent remuneration policy
which promotes sound and effective risk management. The
AIFMD also sets out a number of principles which should be
adopted by AIFMs in a proportionate way. These principles
include the following requirements:
• The remuneration policy should be in line with the business
strategy, objectives, values and interests of the
AIFM, and the AIF it manages or the investors of such
AIF (including measures to avoid conflicts of interest)
and does not encourage risk-taking which is inconsistent
with the risk profiles, fund rules or instruments of
incorporation of the AIF it manages;
• The general principles of the remuneration policy should
be reviewed periodically and be subject to central and
independent internal review;
• Staff members engaged in control functions should be
compensated in accordance with achievement objectives
linked to their functions;
• The remuneration of the senior officers in the risk management
and compliance functions should be directly
overseen by a remuneration committee (in line with the
proportionality principle, ESMA has confirmed that not all
AIFMs will require a remuneration committee; for example,
AIFMs managing AIFs of €1.25 billion (in aggregate)
or less and with 50 employees or less);
• Fixed and variable components (for example, bonuses)
of total remuneration should be appropriately balanced
and the fixed element must represent a sufficiently high
proportion of total remuneration to allow a fully flexible
bonus policy (including not paying bonuses at all);
• At least 50 percent of variable remuneration must be
paid in shares or units in the relevant AIF (subject to the
legal structure of the AIF and adjustment for multiple
AIFs);
9
• A substantial portion, which is at least 40 percent to
60 percent (where the variable remuneration is a particularly
high amount) of the variable remuneration component
should be deferred over a period appropriate
to the life cycle, redemption policy and risks of the AIF
(which, per the AIFMD, will usually be at least three to
five years);
• The AIFM’s pension policy should be in line with the business
strategy, objectives, values and long-term interests
of the AIFM and the AIF it manages (for example, if the
employee leaves the AIFM before retirement, discretionary
pension benefits should be held by the AIFM for a
period of five years); and
• Staff members should be required to undertake not to
use personal hedging strategies or insurance to undermine
the risk alignment effects embedded in their
remuneration arrangements and variable remuneration
should not be paid through vehicles or methods
that facilitate the avoidance of the requirements of the
AIFMD.
These requirements are derived from the Financial Stability
Board/G20 standards which are also similar (but not identical)
to the remuneration provisions being implemented in
accordance with the CRD (which will depend on the nature
of the organisation and its business).
Credit institutions and investment firms subject to the CRD
and the AIFMD will therefore have to be aware of where
the AIFMD requirements impose additional or different
requirements to those in the CRD. This reflects that fact that
although ESMA’s recent final report does clarify that public
disclosure of detailed information regarding remuneration
policies and practices will not necessarily have to be
made under the AIFMD, such public disclosure may still be
required under other EU and national rules.
Action Points. AIFMs should assess the suitability of current
remuneration arrangements and implement the necessary
changes. In particular, a comprehensive remuneration policy
should be put in place which includes those elements stipulated
by the AIFMD.
ASSET VALUATION
Under the AIFMD, for each of the AIFs it manages, an AIFM
is required to ensure that:
• Appropriate and consistent policies and procedures are
established for the proper and independent valuation of
the assets of those AIFs; and
• The net asset value per share/unit in the AIF is calculated
and disclosed to investors (it is not clear how this
second requirement will be applied to AIFs which issue
neither shares nor units, such as private equity or real
estate AIFs structured as limited partnerships).
The delegated Regulation lays down the main features of
the valuation policies and procedures. Such policies and
procedures should cover all material aspects of the valuation
process and controls in respect of the relevant AIF,
including (by way of example):
• The competence and independence of the personnel
valuing the assets;
• The specific investment strategies of the AIF;
• The controls in place over the selection of valuation
inputs, sources and methodologies; and
• The escalation channels for resolving valuation
differences.
The valuation policies should set out the responsibilities
of all parties involved in the valuation process, including
the AIFM’s senior management. Where an external valuer
is appointed, the policies should set out a process for the
exchange of information between the AIFM and the external
valuer to ensure all necessary valuation information is
provided.
All AIF assets must be valued at least once a year and, additionally,
when units of the AIF are issued or redeemed (if the
AIF is close-ended) or with “appropriate frequency” (in the
case of open-ended AIFs). An AIFM may calculate the valuations
itself or appoint an independent external valuer to
perform this function.
DELEGATION
Subject to certain requirements and limitations, the AIFMD
permits AIFMs to delegate the performance of some of their
functions.
The delegated Regulation sets out the conditions under
which an AIFM is permitted to delegate certain of its functions.
The conditions are intended to ensure that delegation
10
does not prevent an AIFM from acting in the best interests
of investors and that the AIFM retains responsibility for delegated
functions. In particular, an AIFM cannot delegate its
functions where delegation would render it a mere “letterbox”
entity.
An AIFM shall be deemed to be a letter-box entity and shall
no longer be considered to be the manager of the AIF in, at
least, any of the following circumstances:
• The AIFM no longer retains the necessary expertise and
resources to supervise the delegated tasks effectively
and manage the associated risks;
• The AIFM no longer has the power to take decisions in
key areas which fall under the responsibility of senior
management (particularly in relation to investment policies
and strategies);
• The AIFM loses its contractual rights to instruct and
inspect its delegates or the exercise of such rights
becomes impossible; or
• The AIFM delegates the performance of investment
management functions to an extent that exceeds by a
substantial margin the investment management functions
performed by the AIFM itself (this restriction being
a late clarification from ESMA that will have material
practical implications for a number of fund managers).
In addition, an AIFM seeking to delegate certain of its functions
must be able to demonstrate that the delegate is
capable of performing, qualified to perform and has sufficient
resources to perform the relevant functions delegated,
was selected with all due care and can be effectively monitored
and instructed by the AIFM. The delegate’s staff must
also be sufficiently experienced and of good repute.
Further restrictions apply when an AIFM delegates portfolio
management or risk management. Such functions may not
be delegated to:
• The depositary or any delegate of the depositary;
• A non-EU undertaking, unless there is appropriate cooperation
between the regulatory authorities supervising
the AIFM and the delegate;
• Any entity that is not both authorised or registered and
supervised for asset management, unless the AIFM’s
regulator has given its prior consent; or
• Any other entity whose interests may conflict with the
AIFM or the AIF investors unless that entity segregates
its delegated tasks from any other potentially conflicting
tasks and potential conflicts are properly identified,
managed, monitored and disclosed to investors.
Sub-delegation by a delegate is allowed, provided that the
following conditions are satisfied:
• The AIFM has consented in advance;
• The AIFM has given prior notice of the sub-delegation to
its regulator;
• The requirements applicable to a delegation of the function
are also met in relation to the sub-delegation; and
• The delegate reviews the services provided by its subdelegates
on an ongoing basis.
An AIFM applying for authorisation under the AIFMD will
need to disclose its delegation arrangements (including the
identity of the delegate and a description of any potential
conflicts of interest) to its regulator. An AIFM must then give
its regulator advance notice of any new delegation arrangement.
The same details must also be made available to
AIF investors before they invest. This information must be
updated to reflect any material changes.
DEPOSITARIES
Generally, AIFMs will need to ensure that a single depositary
is appointed for each AIF it manages. However, a depositary
is not required in relation to a non-EU AIF that is either
(i) managed by a non-EU AIFM and marketed in the EU via
national private placement regimes or (ii) managed by an EU
AIFM but not marketed in the EU.
The AIFMD specifies which entities can act as a depositary.
Originally, it was intended that the AIFMD would allow only
an EU credit institution to be a depositary, but this requirement
has been relaxed. Investment firms and other appropriately
authorised persons (such as institutions eligible to
be a UCITS depositary) can also carry out the function.
AIFMs of AIFs whose investors have no redemption rights
for five years after their initial investment may have further
flexibility in choosing a depositary. The depositary to such
AIFs can be any entity which (i) carries out depositary functions
as part of its professional or business activities, (ii) is
subject to mandatory professional registration recognised
by law and/or professional conduct rules and (iii) can furnish
11
sufficient financial and professional guarantees that it can
meet its commitments and effectively perform its functions
as depositary.
Generally speaking, the depositary of an EU AIF must either
have its registered office or a branch in the AIF’s home
Member State.
The depositary of a non-EU AIF must either have its registered
office or a branch in the AIFM’s home Member State.
The depositary may be established in the non-EU country
in which the AIF is established if a number of conditions
are met.
The AIFMD sets out numerous functions and duties for
depositaries and restricts their ability to delegate. The functions
and duties include:
• Acting independently, honestly, fairly, professionally and
in the interests of the AIF and the investors;
• Holding in custody the financial instruments belonging
to the AIF;
• Verifying ownership of other assets and maintaining a
record evidencing ownership;
• Cash flow monitoring;
• Checking that all investor subscription payments and
funds are received and booked in segregated accounts
with appropriate institutions;
• Ensuring transactions in AIF units/shares are carried out
in accordance with applicable law and the AIF’s internal
rules;
• Confirming that AIF shares or units are valued in accordance
with applicable national law, the AIF’s internal rules
and AIFMD valuation requirements (see above);
• Executing the AIFM’s instructions, unless they conflict
with applicable national law or the AIF’s internal rules;
and
• Remitting consideration for transactions in AIF assets
and applying income appropriately.
The delegated Regulation sets out detailed provisions
about the obligations and rights of depositaries and emphasises
that a depositary’s key function is the protection of
the AIF’s investors. The delegated Regulation also requires
information flow to enable the depositary to have a clear
overview and effectively monitor the AIF’s assets and cash
flow. Criteria are established for the scope for financial
instruments to be held in custody, general oversight duties,
delegation of custody and liability for the loss of instruments
held in custody.
The AIFMD imposes liability on depositaries in relation to
loss of financial instruments owned by an AIF and held by
the depositary. The depositary will avoid such liability only
if the loss is caused by an external event beyond its control.
These requirements mean that the cost of depositary
services is likely to increase to reflect the depositary’s additional
risk above that currently borne by administrators and
operators.
Action Points. Given that AIFMs will need to appoint depositaries
(and may also appoint delegates and external valuers),
it will be important to liaise with the intended service
provider/delegate to ensure the counterparty is suitable.
AIFMs should consider related budgeting issues and the
manner in which such arrangements will be documented.
DISCLOSURE AND TRANSPARENCY
One of the main aims of the AIFMD is to improve transparency
for investors and supervisors in respect of AIFMs
and AIFs. The hope is that increased information flows will
allow investors and supervisors to properly understand the
nature and risks of an AIF and the related management
infrastructure.
From a supervisory perspective, ESMA will maintain a central
public register identifying each AIFM authorised under the
AIFMD and a list of AIFs managed and/or marketed in the
EU. There is no requirement in the AIFMD for any information
about investors in AIFs to be disclosed.
As referred to in the background and implementation section
of this Commentary, ESMA has recently published final
guidelines on reporting requirements under the AIFMD to
supplement the delegated Regulation. The final guidelines
are primarily for the use of national competent authorities
(such as the FCA) and one of ESMA’s main aims is to standardise
the information received by competent authorities
and exchanged between them pursuant to Articles 25 and
53 of the AIFMD.
In short, the guidelines provide clarifications on the information
that AIFMs must report to national competent
authorities, the timing of such reporting together with the
12
procedures to be followed when AIFMs move from one
reporting obligation to another.
AIFMs are required regularly to report to the relevant competent
authority on the principal markets and instruments in
which it trades on behalf of the AIF. AIFMs are also required
to provide information relating to assets held (including
asset liquidity), valuations, risk profiles and the results of
specified stress tests together with principal exposures and
important concentrations (and similar information must also
be provided to investors on a periodic basis).
AIFMs are to produce an annual report with respect to each
of the AIFs it manages for each financial year. The report
is to be provided to investors on request and made available
to the relevant competent authority and should include:
a balance sheet; an income and expenditure account; a
report on activities; any material changes in certain information
provided to investors; and remuneration figures. Such
reports should not be made public by the relevant authority.
The guidelines will be translated into the official EU languages
and published on the ESMA website. The publication
of the translations will trigger a two-month period during
which national competent authorities must notify ESMA as to
whether they comply or intend to comply with the guidelines.
The guidelines are accompanied by two helpful flow-charts
(Annex I to the guidelines) which show the reporting requirements
in respect of an authorised AIFM and a non-EU AIFM
using the national private placement regime.
ESMA has also published an opinion that proposes introducing
additional periodic reporting including such information
as value-at-risk of AIFs or the number of transactions carried
out using high frequency algorithmic trading techniques.
AIFMs will be required to make available to all investors in
each of the AIFs they manage (or market in the EU) the following
information before they invest, as well as upon any
material changes thereto: the investment strategy and
objectives; the procedures by which the AIF may change its
investment strategy; the main legal implications of the contractual
relationship entered into by the investor for the purpose
of investment in the AIF; the identities of the AIFM and
the AIF’s depositary, auditor and any other service providers
and a description of their duties and the investor’s rights
with respect to them; how the AIFM’s capital requirements
have been complied with; any delegated management
function; the valuation procedure and pricing methodology;
the liquidity risk management system; fees, charges and
expenses and the maximum amount of these to be borne
by the investors; how the fair treatment of investors is to be
ensured; the latest annual report; the procedure and conditions
of issue and sale of units/shares in the AIF; the latest
net asset valuation of the AIF or the latest market price; if
available, the historical performance of the AIF; the identity
of the prime broker (if any); how additional information will
be disclosed; and any arrangement made by the depositary
contractually to discharge itself of liability.
There are additional disclosure requirements in relation
to substantially leveraged AIFs. Under the delegated
Regulation, an AIF would be considered to be employing
leverage on a substantial basis when its exposure exceeds
three times its net asset value. AIFMs of substantially leveraged
AIFs must disclose the extent of the leverage and a
breakdown of how the leverage arises.
Action Point. AIFMs should review the breadth and depth
of their current reporting regime and confirm whether additional
systems will be required in order to produce the level
of disclosure prescribed by the AIFMD.
PRIVATE EQUITY PROVISIONS
AIFMs managing one or more AIFs which individually or
jointly acquire control (i.e. more than 50 percent of the voting
rights) of a non-listed company will be required to notify the
non-listed company, the non-listed company’s shareholders,
and the relevant competent authority of the acquisition.
The notification should include details of any change to the
voting rights, the conditions under which control has been
reached and the date on which control was reached.
Where an AIF buys, sells or holds shares of a non-listed
company, the AIFM must notify the competent authority of
the proportion of voting rights held by the AIF in the company
when that proportion reaches, exceeds or falls below
the thresholds of 10, 20, 30, 50 and 75 percent.
The AIFMD also includes asset protection measures which
require AIFMs managing one or more AIFs with control of a
non-listed company to use its best efforts to prevent asset
stripping (i.e. capital reductions, share redemptions, etc.) in
the first 24 months of ownership.
13
Action Points. It should be noted that these requirements do
not apply where the non-listed companies concerned are
(i) small or medium-sized enterprises or (ii) special purpose
vehicles for the purpose of purchasing, holding or administering
real estate. The Treasury has proposed that these
private equity provisions will also not apply to sub-threshold
AIFMs. AIFMs should consider whether their plans would be
caught by the private equity provisions under the AIFMD and
what alternative structures could be used, if necessary.
The provisions place restrictions on the AIFM for two years
from acquisition of control. It would seem reasonable to
assume that these restrictions would not apply if the AIF
disposed of the relevant entity. However, the AIFMD does not
explicitly state that this is the case and AIFMs may consider
it prudent to seek an undertaking from any buyer regarding
the restrictions.
EU PASSPORTS AND MARKETING
The AIFMD introduces a framework for AIFMs to market
AIFs to investors in the EU provided certain conditions are
satisfied.
Marketing is defined in the AIFMD as any direct or indirect
offering or placement at the initiative of the AIFM or on
behalf of the AIFM of units or shares in an AIF it manages to
investors in the EU. According to the FCA Policy Statement,
marketing is understood to cover capital raising and this
does not include ‘secondary markets’ unless such activities
include additional capital raising. Furthermore, the AIFMD
does not apply to passive marketing or reverse solicitation.
The AIFMD marketing restrictions do not apply to an offering
or placement of units or shares of an AIF to an investor
made at the initiative of that investor. The FCA’s guidance
states that: “a confirmation from the investor that the offering
or placement of units [or] shares of the AIF was made at its
initiative, should normally be sufficient to demonstrate that
this is the case, provided this is obtained before the offer or
placement takes place. However, AIFMs and investment firms
should not be able to rely upon such confirmation if this has
been obtained to circumvent the requirements of AIFMD”.
This guidance is helpful in assisting AIFMs and is a departure
from the FCA’s previous approach to this area. Rather
than trying to give exhaustive guidance on how to determine
whether marketing is at an investor’s initiative based
on prior knowledge of the AIF or involvement with the AIFM,
the FCA has simply provided that firms may generally rely
on a confirmation from an investor that the approach is at
the investor’s initiative.
EU Passports. An EU Passport is to be introduced to allow
AIFMs to market AIFs which have been approved in one
Member State to professional investors across the EU. With
the exception of EU AIFs managed by EU AIFMs (for which
the EU Passport will be the sole means of marketing once
the AIFM becomes authorised under the AIFMD), the EU
Passport will become available in 2015 and will run in parallel
with national private placement regimes until at least 2018
(as more fully described below).
EU AIFMs managing EU AIFs must market using the EU
Passport from 22 July 2013 provided that the AIFMs are
authorised under, and comply in full with, the AIFMD. This
means that, to the extent that the AIFM can make use of the
transitional provisions, it may not be required to use the EU
passport until such time as it is authorised, which should be
in good time for 22 July 2014.
EU AIFMs managing non-EU AIFs may market using the EU
Passport from, at the earliest, the second half of 2015 provided
that they are authorised under, and comply in full with,
the AIFMD and the following cooperation requirements are
satisfied:
• Regulatory Cooperation: A supervisory cooperation
agreement must be in place between the competent
authority of the EU Member State in which the AIFM is
authorised and the competent authority in the jurisdiction
where the AIF is established;
• Financial Action Task Force (“FATF”) Blacklist: The jurisdiction
where the AIF is established must not be on the
blacklist produced by the FATF on anti-money laundering
and terrorist financing; and
• Taxation: Taxation agreements must exist between each
Member State where the AIF is to be marketed, the jurisdiction
where the AIF is established and the Member
State in which the AIFM is authorised.
Non-EU AIFMs managing EU AIFs may market using the
EU Passport from, at the earliest, the second half of 2015
provided that they are authorised under the AIFMD by the
“Member State of Reference” (see below), they comply with
the AIFMD in full, and the following cooperation requirements
are satisfied:
14
• Regulatory Cooperation: A supervisory cooperation
agreement must be in place between the competent
authority of the “Member State of Reference” and the
competent authority in the jurisdiction where the AIFM is
established;
• FATF Blacklist: The jurisdiction where the AIFM is established
must not be on the FATF blacklist; and
• Taxation: A taxation agreement must exist between the
“Member State of Reference” and the jurisdiction where
the AIFM is established.
Non-EU AIFMs managing non-EU AIFs may market using the
EU Passport from the second half of 2015 provided that they
are authorised under the AIFMD by the “Member State of
Reference”, they comply with the AIFMD in full and the following
cooperation requirements are satisfied:
• Regulatory Cooperation: A supervisory cooperation
agreement must be in place between the competent
authority of the “Member State of Reference” and the
competent authority in the jurisdiction where the AIFM is
established;
• FATF Blacklist: The jurisdictions where the AIFM and the
AIF are established must not be on the FATF blacklist;
and
• Taxation: Taxation agreements must exist between the
jurisdictions where the AIFM and the AIF are established,
each of the Member States where the AIF is to be marketed
and the “Member State of Reference”.
The definition of “Member State of Reference” differs
depending on the type and number of AIFs that an AIFM is
intending to market.
For EU AIFs, the “Member State of Reference” will, broadly
speaking, be the Member State where the AIF is established
or, where multiple AIFs are to be marketed, the jurisdiction
where most of the AIFs are established or where the majority
of assets are managed.
For non-EU AIFs, the “Member State of Reference” will,
broadly speaking, be the Member State where the AIFM
intends to market the AIF or, where the AIF will be marketed
in multiple Member States, the Member State in which the
AIFM intends to develop effective marketing for most of
the AIF.
When using the AIFMD’s Passport regime, the AIFM must
notify its regulator of the AIF it wishes to market. This
notification must include the AIF’s internal rules, the identity
of the depositary and all information on the AIF which
is available to investors (as required by the disclosure and
transparency provisions noted above).
Within 20 working days of receipt of the notification, the regulator
will inform the AIFM whether it can begin marketing
the AIF. Approval for marketing will be withheld where the
AIFM cannot demonstrate that its management and marketing
will be in line with the AIFMD requirements. The regulator
will transmit the notification to the other Member States in
which the AIFM wishes to market the AIF. If any of the information
provided in the notification changes, the AIFM should
give notice of the changes to its regulator.
The approval process outlined above is for EU AIFMs but the
process for non-EU AIFMs is expected to be similar with the
regulator in the relevant Member State of Reference fulfilling
the home regulator role.
Private Placement Regimes. The national private placement
regime will not be available to EU AIFMs managing EU AIFs
from the point at which the AIFM becomes authorised under
the AIFMD.
EU AIFMs managing non-EU AIFs may market using national
private placement rules until 2018 provided that they are
authorised under, and comply in full with, the AIFMD (save
for Article 21–Depositary) as well as any additional local
requirements in a particular Member State, and the following
cooperation requirements are satisfied:
• Regulatory Cooperation: A supervisory cooperation
agreement must be in place between the competent
authority of the EU Member State in which the AIFM is
authorised and the jurisdiction where the AIF is established;
and
• FATF Blacklist: The jurisdiction where the AIF is established
must not be on the FATF blacklist.
Non-EU AIFMs managing EU AIFs may market using national
private placement rules until 2018 provided that that they
are authorised under the AIFMD by the “Member State of
Reference”, they comply with the AIFMD in full as well as any
additional local requirements in a particular Member State
and the following cooperation requirements are satisfied:
• Regulatory Cooperation: A supervisory cooperation
agreement must be in place between the competent
15
authority of the “Member State of Reference”, the competent
authority in the jurisdiction where the AIFM is
established and the competent authority of the Member
State to which the AIF will be marketed; and
• FATF Blacklist: The jurisdiction where the AIFM is established
must not be on the FATF blacklist.
Non-EU AIFMs managing non-EU AIFs may market using
national private placement rules until 2018 without being
authorised under the AIFMD provided that they comply with
the disclosure and transparency and reporting provisions
of the AIFMD in full, as well as any additional local requirements
in a particular Member State, and the following cooperation
requirements are satisfied:
• Regulatory Cooperation: A supervisory cooperation
agreement must be in place between the competent
authority of the “Member State of Reference” in which
the AIF will be marketed and the competent authority in
the jurisdictions where the AIFM and the AIF are established;
and
• FATF Blacklist: The jurisdictions where the AIFM and the
AIF are established must not be on the FATF blacklist.
After 2018, it is expected that the private placement rules will
be phased out following a review by ESMA, at which point
the EU Passport regime will come solely and fully into force.
These aspects of the AIFMD are thus not an immediate significant
cause for concern as long as at least one of the
AIFM and the AIF are situated outside the EU, given that the
restrictions on marketing will not be fully implemented until
2018 at the earliest. However, the requirements set at above
will still need to be complied with (following the end of the
transitional period, if applicable) and AIFMs should be alert
to any chances to national private placement regimes and
any related notification requirements.
ESMA may establish guidelines on how EU Passports should
be awarded by Member States’ competent authorities. ESMA
will also be responsible for maintaining important information—
for example, a centralised blacklist of AIFs whose
passport applications have been rejected.
Member States may allow EU AIFMs and non-EU AIFMs to
market an AIF to retail investors and will be required to notify
the European Commission and ESMA of the types of AIF
which an AIFM may market, together with any additional
requirements it seeks to impose on such activities. There is
no EU Passport for marketing to retail investors. It is reasonable
to assume that Member States will not allow an AIF to
be marketed to retail investors on their territory unless the
AIF is managed in accordance with the AIFMD.
Action Points. AIFMs should take steps to ensure that their
marketing documentation will be sufficient to satisfy the
AIFMD marketing disclosure requirements and ensure that
they have procedures in place to meet ongoing disclosure
requirements. In addition, given the helpful guidance from
the FCA in the UK relating to reverse solicitation, AIFMs who
wait to make use of this carve-out should ensure that their
marketing documentation and subscription agreements
confirm that the marketing is at the investor’s initiative. This
reflects a broader point that private placement memorandum
should now contain wording addressing the application
of the AIFMD and how compliance will be approached.
In addition, the significant political support for restrictions on
the activities of AIFMs might lead to Member States tightening
their private placement regimes. AIFMs will have to be
vigilant for changes to the respective regimes as they may
have to comply with stricter compliance regimes in the short
to medium term.
LAWYER CONTACTS
For further information, please contact your principal Firm
representative or the lawyers listed below. General email
messages may be sent using our “Contact Us” form, which
can be found at www.jonesday.com.
John Ahern
London
+44.20.7039.5176
[email protected]
Neil Seaton
London
+44.20.7039.5175
[email protected]
Adam Skinner
London
+44.20.7039.5123
Singapore
+ 65.6233.5520
[email protected]
© 2014 Jones Day. All rights reserved. Printed in the U.S.A.
This Commentary is a publication of Jones Day. The contents are for general information purposes only and are intended to raise your awareness
of certain issues (as at January 2014) under the laws of England and Wales. This Commentary is not comprehensive or a substitute for
proper advice, which should always be taken for particular queries. It may not be quoted or referred to in any other publication or proceeding
without the prior written consent of the Firm, to be given or withheld at its discretion. The mailing of this publication is not intended to create,
and receipt of it does not constitute, a solicitor-client relationship.
APPENDIX—AIFMD APPLICABILITY AND REQUIREMENTS—SUMMARY TABLE
AIFMD Applicability and Requirements
1 Please see accompanying Commentary in respect of exemptions to the AIFMD (see Exemptions section).
2 In addition to the rules set out in AIFMD, Member States may impose their own stricter private placement regimes. AIFMs should continue
to monitor the regimes in all Member States where they intend to market.
EU manager/
EU fund
EU manager/
Non-EU fund
Non-EU manager/
EU fund
Non-EU manager/
Non-EU fund
Authorisation for AIFM1 AIFMD provides one-year
transitional period for
AIFMs managing AIFs
before 22 July 2013.
AIFMs will have until
July 2014 to comply with
AIFMD requirements.
AIFMD provides one-year
transitional period for
AIFMs managing AIFs
before 22 July 2013.
AIFMs will have until
July 2014 to comply with
AIFMD requirements.
Required if EU Marketing
Passport is extended
in 2015 (at the latest),
regardless of whether
AIF is marketed in the EU
(may be required after
the transitional period).
Not required unless
AIF will be marketed in
the EU.
Not required if AIF will
only be marketed in the
EU under Member State
private placement rules
(this may cease in 2018).
Will be required if using
EU Marketing Passport.
EU Marketing Passport From 2013 (may be
subject to transitional
period) in the following
circumstances:
• AIFM must be authorised
and comply in full
with AIFMD; and
• Consent of AIFM home
Member State regulator
required.
May be available from
2015. AIFM must be
authorised and the
following requirements
satisfied:
• Comply with AIFMD;
• Cooperation
arrangements;
• No FATF blacklisting;
• Tax information
exchange agreement;
and
• Consent of AIFM home
regulator.
May be available from
2015. AIFM must be
authorised and the
following requirements
satisfied:
• Comply with AIFMD;
• Cooperation
arrangements;
• No FATF blacklisting;
• Tax information
exchange agreement;
and
• Consent of AIFM home
regulator.
May be available from
2015, but AIFM must be
authorised and consent
of AIFM reference
Member State required.
Requirements:
• Comply with AIFMD;
• Cooperation
agreements;
• No FATF blacklisting;
and
• Tax information
exchange agreement.
Private Placement
Marketing Regimes2
N/A Available from 2013 and
may become unavailable
from 2018.
Requirements:
• AIFM must be
authorised;
• Comply with AIFMD;
• Cooperation arrangements;
and
• No FATF blacklisting.
Available from 2013 and may become unavailable
from 2018.
Requirements:
• Compliance with annual report, investor disclosure,
regulator reporting and unlisted companies provisions
of AIFMD;
• Cooperation agreements; and
• No FATF blacklisting.
AIFM Capital
Requirements
Applicable Applicable Applicable (if authorised) Applicable (if authorised)
Operating Conditions Applicable Applicable Applicable (if authorised) Applicable (if authorised)
Conflicts of Interest Applicable Applicable Applicable (if authorised) Applicable (if authorised)
Risk Management Applicable Applicable Applicable (if authorised) Applicable (if authorised)
Depositary Applicable (depositary
must be established
in AIF’s home Member
State)
Not required if there is no
marketing in the EU. AIFM
is not required to comply
in full if marketing in the
EU under the Member
States’ Private Placement
Regimes. Must comply in
full if marketing under the
EU Marketing Passport.
Applicable (if authorised)
(depositary must be established
in AIF’s home
Member State)
Applicable (if authorised)
Depositary must be
established
in AIF country
or AIFM’s reference
Member State. Use of
a non-EU depositary
subject to additional
requirements.
Annual Report Applicable Applicable if AIF is
marketed in the EU
Applicable if AIF is
marketed in the EU
Applicable if AIF is
marketed in the EU
Disclosure to Investors Applicable Applicable Applicable if AIF is
marketed in the EU
Applicable if AIF is
marketed in the EU
Reporting to Competent
Authorities
Applicable Applicable Applicable if AIF is
marketed in the EU
Applicable if AIF is
marketed in the EU