As many private fund managers are aware, the Alternative Investment Fund Managers Directive (AIFMD) promulgated by the European Commission has begun to impose significant changes on the way alternative investment funds (AIFs), including private equity funds, hedge funds and other private funds managed by European investment advisers can be managed and marketed, and the way private funds managed by nonEuropean investment advisers may be marketed to investors in the European Union (EU).
In general, the AIFMD applies (in whole or in part) to:
- an EU-based private fund manager, which manages or markets an AIF based in the EU;
- an EU-based private fund manager, which manages or markets a non-EU-based AIF;
- a non-EU-based fund manager, which manages an EUbased AIF which has been marketed in the EU; and
- a non-EU-based fund manager, which markets an AIF (whether EU or not) in the EU.
This note concerns the last category, which includes US, Latin American and other non-EU fund managers that market or intend to market to EU investors (Private Fund Managers). As used in this note, the term “marketing” means any direct or indirect final offer or placement of securities in an AIF at the initiative of the Private Fund Manager to or with investors domiciled or with a registered office in the EU, and does not include so-called “reverse solicitation,” which some Private Fund Managers have relied on to place interests in AIFs to EUbased investors without having to comply with the AIFMD. Only certain of the AIFMD provisions, discussed below, will initially apply to Private Fund Managers.
The deadline for enactment by many EU member countries of the AIFMD passed on july 22, 2013. Since that date, any Private Fund Manager marketing interests in a new AIF to investors in the EU has been obliged to comply with the AIFMD. However, most member countries enacted transitional arrangements which allow Private Fund Managers of existing AIF with EUbased investors as of july 22, 2013 to conform their conduct to the AIFMD.
These transitional arrangements generally expire on july 21, 2014. After that date, any Private Fund Manager that markets an AIF in EU member countries will have to comply with the requirements of the AIFMD. These requirements include:
- Private Fund Managers may, for the time being, market their AIFs only under the local private placement regime (if any) in each EU member country. These private placement regimes range in complexity from a simple requirement to notify the local regulator of the Private Fund Manager’s reliance on the private placement regime (as in the United Kingdom) to a substantial application for a license to act as an investment adviser (as in germany and Sweden). The AIFMD features a “passport” regime, but it is unclear whether that regime will ever be available to non-EU Private Fund Managers and, in any case, it will not be available to such Private Fund Managers until late 2015;
- Cooperation arrangements between the domicile of the Private Fund Manager, the domicile of the AIF (e.g., Delaware or the Cayman Islands) and the EU member state where the Private Fund Manager wishes to market must be in place, which arrangements allow for securities regulators in each jurisdiction to cooperate on examination and enforcement;
- Disclosure and transparency requirements, which impose specific requirements as to the content of marketing materials, periodic reporting to the regulators in the EU member states where the Private Fund Manager is marketing, and an annual report to investors and regulators which includes a breakdown of the remuneration paid to the Private Fund Manager and its employees; and
- The Private Fund Manager and the AIF must not be domiciled in a country on the Foreign Assets Task Force’s “black list.”
Private equity funds are subject to certain additional reporting requirements and limitations on asset-stripping.
Private Fund Managers who manage AIFs with EU-based investors or who plan to market in the EU need to keep the july 22, 2014 deadline in mind and begin, if they have not, planning how they will comply with the applicable requirements of the AIFMD.