Key considerations for fund managers and directors

Fund managers and directors who wish to market or raise capital in Europe after July 22, 2014 when the Alternative Investment Fund Managers Directive (AIFMD) takes effect should now be preparing themselves for AIFMD compliance.

AIFMD has created an alternative regulatory passport for investment managers to access European investors and the Directive impacts EU fund managers that manage alternative investment funds, those that manage funds established in the EU and non-European managers (including U.S. persons) that market Alternative Investment Funds (AIFs) in the EU.

How such managers can become AIFMD compliant was one of the topics explored at a DMS forum, titled, Navigating the AIFMD Landscape, presented by Derek Delaney, Managing Director of DMS (Europe) on Thursday, May 22 in Grand Cayman.

Mr. Delaney noted that AIFMD is a complex piece of legislation and as of July 22 this year, it will become part of the regulatory fabric of the entire EU. “Failure to comply with its requirements could mean that managers are denied access to opportunities to raise capital in the EU,” he stated.

Four Ways to Access European Capital post AIFMD

Mr. Delaney discussed the four ways that fund managers can continue to access European capital and highlighted some of the advantages and pitfalls of each.

1.      Passive Approach – Reverse Solicitation

In this method, there is no active marketing involved and it entails waiting for potential investors to contact the manager directly. A manager cannot provide any information to an investor making general enquiries. The prospective investor would need to be seeking information for a specific fund. There is a tremendous risk to managers if their reverse solicitation methods are deemed to be illegal, because investors would then be empowered to seek return of their funds.

2.        Private Placement/National Private Placement Regimes

Mr. Delaney noted that many U.S. managers have been taking the private placement route. This approach entails raising funds on a country by country basis and managers have to deal with the reality that each jurisdiction has its own set of rules. Disclosure requirements include remuneration of manager personnel. This is not a viable option for EU managers of EU alternative investment funds (AIFs), which must apply for full AIFMD authorization.

3.        Setting up a European AIF Manager/Fund

The AIF Manager would be governed by the AIFMD and local implementing regulations. The AIF would be regulated in accordance with the local requirement of each country.

Qualification for the EU “marketing passport” can be achieved in two ways, either via a self-managed fund with an internal board that oversees AIFMD compliance or by contracting an independent management company that will perform compliance functions.

4.        AIF Platform Solution

The benefits of the platform solution include experience and familiarity with regulatory requirements, cost savings and speed to market. This option also satisfies the preference for a European AIF, particularly from institutional investors.

AIFMD Compliance: Five Considerations for Fund Managers

Mr. Delaney ended the presentation with five questions for fund managers to contemplate as they get ready for AIFMD implementation.

  • Have you updated your prospectus for AIFMD?
  • Have you scrubbed your distribution/marketing list for European contacts (where you are not registered in their home domicile)?
  • Are you registering for private placement in any European country?
  • If so, do you have an Annex 4 solution and a Depot Lite solution, where required (e.g. Germany, Denmark)?
  • Do you have plans for a European AIF?

Full content of the AIFMD presentation is available on video and may be viewed here.