The Central Bank of Ireland (the “Central Bank”) has published a feedback statement and an updated AIF Handbook following its October 2012 consultation (“CP60”) on implementation of the Alternative Investment Fund Managers Directive (“AIFMD”).  The AIF Handbook has been amended to incorporate changes resulting from the consultation process and the publication of the European Commission’s Delegated Regulation supplementing the AIFMD (the “Level 2 Regulation”).  Matheson was closely involved in the preparation of the response submitted by the Irish Funds Industry Association (“IFIA”) and also made a separate submission on the consultation.  The Central Bank has responded positively to a number of the proposals contained in those submissions.

Two issues which received significant attention in the responses to CP60 were the rules applicable to master / feeder structures and the application of the AIFMD rules to AIFMs managing assets below the thresholds specified in the AIFMD.

Master / feeder structures

Under the existing regime qualifying investor funds (“QIFs”) may not invest more than 50% of net assets in a single unregulated investment fund.  This rule is designed to address the Central Bank’s concern that an Irish regulated vehicle is not used as a wrapper for investment into unregulated funds.  Many of the responses to CP60 pointed out that this 50% threshold was not consistent with the master / feeder provisions of the AIFMD, which provides for an 85% limit.  The Central Bank has responded to the submissions received by amending the AIF Handbook to provide that a qualifying investor alternative investment fund (“QIAIF”) can disapply the 50% rule where it has a minimum subscription limit of €500,000, and where its prospectus contains a detailed and prominent disclosure which identifies on an item-by-item basis those obligations and conditions which apply to the QIAIF and its alternative investment fund manager (“AIFM”) but which do not apply to the underlying fund and its manager.  Where a QIAIF has a minimum subscription limit of below €500,000, the existing 50% rule will continue to apply.

Sub-threshold AIFM

The main provisions of the AIFMD only apply where the AIFM manages assets of €100 million or more. A higher threshold of €500 million applies to AIFM that do not use leverage and have a five year lock-in period for their investors.  AIFMs managing assets falling below these thresholds are only subject to registration and reporting requirements under the AIFMD.  The Central Bank had proposed to apply all AIFMD requirements to all non-UCITS, whether the AIFM managed assets falling below the thresholds specified in the AIFMD or not.  In a welcome development, the amended AIF Handbook provides that managers of QIAIFs authorised after 22 July 2013 and managed by AIFM below the threshold will have two years from the date of launch to apply for authorisation.  During this initial two year period, the QIAIFs will effectively be subject to the current QIF regime, but will not be required to have an approved promoter.  The intention behind the two-year period is to give start-up AIFMs time to grow their business before becoming subject to the full AIFMD regime.  QIFs authorised before 22 July 2013, which are managed by below-threshold AIFM, will be permitted to operate under the current QIF regime, provided they comply with the AIFMD depositary requirements, indefinitely.  All retail investor AIFs (“RIAIF”) will be required to have an authorised AIFM. 

Other amendments to AIF Handbook

Other amendments made to the initial draft of the AIF Handbook include:

  • QIAIFs can purchase assets and immediately place these in side pockets. No limit will apply to the amount of assets which can be side pocketed in this manner.
  • QIAIFs investing in illiquid assets including real estate and private equity may have initial offer periods of up to two years and six months.
  • The regime for professional investor funds (“PIFs”) will be discontinued.  PIFs in existence as at 22 July 2013 will be permitted to continue.  Existing PIFs will not be permitted to establish new sub-funds or new share classes from 22 July onwards and will be encouraged, but not required, to convert to retail investor AIFs or QIAIFs.
  • The verification of performance fees can be performed by a suitable independent party appointed by the AIFM.

The proposals for how the Central Bank will regulate AIFMs now include some additional specifications for the managerial functions of AIFMs in light of the recently published Level 2 Regulation.  The Central Bank has welcomed further submissions in relation to these requirements.

Next steps

The AIF Handbook provides industry with a clear description of the regime which will apply to non-UCITS investment funds in Ireland.  The Central Bank is currently preparing new application forms for RIAIFs, QIAIFs and AIFMs.  It is working towards having authorisation processes and procedures in place well in advance of 22 July 2013 so that applications for authorisation under the AIFMD can be received and processed prior to that date.  It is intended that applications may be received by the end of the first quarter 2013.In relation to transitional measures, the Central Bank states that the European Securities and Markets Authority (“ESMA”) is planning a Questions and Answers document to provide guidance on the transitional arrangements for those provisions of the AIFMD where the precise effective date is unclear.  The Central Bank is awaiting this Q&A document before giving any further guidance on transitional measures.  The Central Banks has stated, however, that there will be no transitional provisions for depositaries, which will have to comply with the AIFMD as from 22 July 2013.

The amended AIF Handbook may be accessed here: AIF Handbook Draft 2

The feedback statement may be accessed here: Feedback Statement