Summary and implications

The Alternative Investment Fund Managers Directive (AIFMD) will almost certainly apply to investment entities listed under Chapter 15 of the UKLA’s Listing Rules (“Investment Companies”). This note sets out some of the factors to consider about the AIFMD.

 Who will be the AIFM?

Investment Companies will either be internally managed or appoint an external investment adviser or manager. Where the Investment Company is ultimately responsible (through its board) for making investment decisions, the Investment Company will be the alternative investment fund manager (AIFM) and the alternative investment fund (AIF). In this context, the Investment Company will be internally managed. The consequences of being internally managed are not dissimilar to any other AIFM, except there are differences in capital requirements.

Where the Investment Company does not have the capacity to make decisions, it is likely to be considered a “letter-box entity” for the purposes of the AIFMD and the external manager will be the AIFM. The Investment Company will still be the AIF.

What is the impact on Investment Companies?

Investment Companies which appoint an external manager should consider taking their own advice on the impact of the AIFMD. Their external manager or adviser will almost certainly be taking its own advice. The Investment Company’s board also has an obligation to inform itself about the impact of the AIFMD on the Investment Company. We have been asked by some Investment Companies to provide separate advice to the board, independent of the manager’s advice, so that the board can make its own assessment of the impact of the AIFMD.

What are the consequences for the AIFM?

  • The new rules implementing the AIFMD in the UK come into effect from 22 July 2013. All AIFs and AIFMs will be affected by the AIFMD and will have a year to comply with the new rules. Firms should be preparing for the changes already.
  • AIFMs will have to apply to the FSA to be authorised to manage AIFs. The FSA has indicated this is likely to be done through a “grandfathering” process for firms which are already authorised, under which the AIFM’s existing FSA permission will be varied to cover acting as an AIFM.
  • AIFMs will be subject to a regulatory capital requirement which is likely to be higher than the current requirements for authorised firms. This will include an own funds requirement of 0.02 per cent of aggregate funds under management in excess of €250m.
  • A third party must be appointed to act as custodian of the Investment Company’s investments.
  • Marketing restrictions will apply to any new fundraisings. It is not yet clear how these marketing restrictions may apply (if at all) to transactions in the secondary market.
  • While existing authorised firms may already be subject to the FSA’s Remuneration Code, the remuneration requirements in the AIFMD may impose additional requirements in terms of the AIFM’s remuneration policies.
  • AIFMs will be required to establish and maintain a permanent risk management function and a risk management policy with qualitative and quantitative risk limits.
  • AIFMs will be required to implement a wide range of organisational requirements (such as establishing decision-making procedures) to the extent they do not already have such procedures in place.
  • AIFMs will be required to publish details of their valuation procedures, liquidity risk management arrangements and details of how they comply with their regulatory capital requirement.