The Alternative Investment Fund Managers Directive (the "Directive") is part of a new suite of  complex rules that will apply to any fund manager that  manages funds in the EU1 or markets funds  in the EU2.

The Directive came into force on 22 July 2013 but non- EU fund managers have been able to rely upon  transitional provisions in certain EU member states for the last 12 months to allow them to  continue marketing without complying with the Directive.

These transitional provisions fall away as of 22 July 2014, and now non-EU fund managers who wish  to market any fund to investors based in the EU must comply with the fundamentally revised legal  regime under the Directive.

Penalties for a failure to comply can be severe but vary from EU member state to EU member state –  for example, in the UK "unlawful marketing" may amount to a criminal offence and investors may  reclaim their invested money as well as compensation for any losses sustained - so it is critical  that non-EU managers understand and adhere to these new rules.

This booklet sets out a brief overview of the new rules, together with details of how Hogan Lovells  can help ensure that non-EU managers are able to comply with them.


The Directive establishes a common EU  regulatory approach to the oversight of managers of  "alternative investment funds", such as debt, private equity, venture capital, real estate, hedge  and infrastructure funds and investment companies (and the like).

The purpose of the Directive is to subject all managers ("AIFMs" or "managers") of alternative  investment funds  ("AIFs"  or  "funds")  to  much  more  stringent legislation if they:

  • manage an AIF (wherever domiciled) in the EU; and/or
  • market an AIF (wherever domiciled) in the EU or to any person domiciled or with a registered  office in the EU ("EU investors").

Strictly speaking, the Directive applies to the AIFMs and not to the AIFs themselves. However, many  of the requirements will in practice impact materially on the AIFs.


An AIF is defined as:

  • a collective investment undertaking that
  • raises capital from a number of investors
  • with a view to investing that capital in accordance with a defined investment policy for the  benefit of those investors.

There are only a very limited number of de minimis and other exemptions, meaning that a very wide  range of fund managers will be caught.

While managed accounts for one investor only, family offices and joint ventures are excluded, most  traditional pooled investment vehicles will be treated as AIFs. as AIFs.


Even managers and funds that are both based outside the EU will be caught by the Directive if the  fund is "marketed" in the EU or to EU investors.

Under the Directive these funds will only be capable of being marketed to EU investors in an EU  member state where the following requirements are met:

  1. The relevant EU member state allows private placement to investors in their territory and the  marketing activity in that EU member state complies with relevant private placement laws in that  state (i.e. the continued marketing of funds will subject to the local laws of each EU member  state).
  2. Neither the non-EU country where the fund is domiciled, nor (if different) the non-EU country  where the manager is established, must be on the FATF's "blacklist" of non-cooperative countries.  (The United States is not on that blacklist.)
  3. There must be a supervisory cooperation agreement in place between the regulator of the home EU  member state(s) of each investor and the regulator(s) of the non- EU country in which the fund  (and, if different, the manager) is located. (To date, the United States has concluded agreements  with 29 of the 31 regulators, i.e. all except Croatia and Slovenia.)
  4. The manager must comply with "operational" rules in certain of the key areas covered by the  Directive. These are:
  • initial and on-going reporting and notification obligations to regulators in each EU member state  where the relevant AIF is marketed;
  • transparency and investor disclosure rules (annual reports, initial and on-going investor  disclosures); and
  • private equity rules (notification of control of certain unlisted EU companies and rules  preventing asset stripping).

If any of these requirements are not met, the relevant fund will only be able to be accessed by EU  investors by way of "reverse solicitation" (and then only subject to any relevant reverse  solicitation rules in the EU member state concerned).

Reverse solicitation

While the Directive seeks to regulate the marketing of funds in the EU, it does not prevent reverse  enquiries – that is to say, promoting a fund at the initiative of the potential investor is not  considered as "marketing" for the purpose of the Directive. This was a hard-won concession that is  designed to help the larger, more sophisticated EU investors to continue to access "best in breed"  funds globally.

Where a manager is unable to use private placement as its route to market – e.g. because a relevant  target EU member state has prohibited private placement, or because the manager is unwilling or  unable to comply with the operational rules referred to above – reverse solicitation may be the  only lawful method of accessing capital from EU investors.

What do non-EU managers need to do?

While non-EU managers have no control over each EU member state's private placement rules, there  are three key steps that they should take as a matter of urgency if they intend to market funds in  the EU or to EU investors (and they should cease all EU marketing activities prior to obtaining the  necessary advice):

  • review carefully the details of the operational rules they will have to comply with (noted above)  to assess if there are any rules that pose a particular problem (e.g. many non-EU managers are  concerned regarding the requirement to disclose the remuneration and, where relevant, carried  interest paid to senior management and relevant staff members);
  • review the new private placement laws with respect to each EU member state in which they intend  to market their fund and explore whether the de minimis provisions will apply; and
  • notify/register the fund with the regulator in  each such EU member state in accordance with  local law requirements (which will vary depending on whether the de minimis provisions apply and  may take several months in certain cases) prior to commencing marketing.

Caution should be taken regarding what activities constitute "marketing" a specific fund in an EU  member state under the Directive (as distinct from undertaking general promotional activities)  given that different EU member states have adopted varying interpretations of this term. Since a  number of requirements become applicable upon commencement of "marketing", non- EU managers should  seek advice prior to commencing any dialogue with potential investors as this could constitute  (unlawful) marketing.

Future development

The Directive put in place a framework to extend the marketing passport that currently allows EU  managers with EU funds to market freely throughout the EU to non-EU funds and non-EU managers  approximately two years after implementation (i.e. in mid-2015). Following this, the Directive  contemplates that the passport and private placement regimes will co-exist for three years (i.e. until mid-2018) and thereafter the private placement regimes are intended to be phased out  and be replaced by the passport alone. However, both the adoption of the passport and the phasing  out of national private placement regimes are dependent on certain conditions being satisfied,  including the European Securities and Markets Authority issuing an opinion on the functioning of  the marketing passport for EU managers and an assessment of the private placement regimes. regimes.

Key points

  • The Directive will have a material impact on alternative investment funds marketed in the EU or  to EU investors even if both the manager and the fund are established outside the EU.
  • Under the Directive, non-EU funds can be marketed in the EU or to EU investors on a private  placement basis, but only to the extent this is permitted by the EU investor's home member state  and only if all conditions for private placement are satisfied. Even so, the regulatory reporting,  investor transparency and various private equity provisions in the Directive will also apply.
  • If the conditions for private placement are not fulfilled, EU investors can only invest in non-EU  domiciled/managed funds on a reverse solicitation basis (at the investors' initiative) and then  only in compliance with the laws of their home member state.