On 17 December 2013 the European Commission adopted regulatory technical standards (RTS) which deal with determining whether an Alternative Investment Fund Manager (AIFM) is an AIFM of open-ended Alternative Investment Funds (AIFs) and/or closed-ended AIFs. Under the Alternative Investment Fund Managers Directive (AIFMD), AIFMs must follow specific rules depending on whether or not they are AIFMs of open-ended and/or closed-AIFs.
The RTS provide that an AIF is open-ended if its units or shares may, at the request of any of its investors, be repurchased or redeemed, before the commencement of its liquidation phase or wind-down, directly or indirectly, out of the assets of the AIF in accordance with the procedures and frequency set out in its constitutional and/or offering documents. This is not affected by;
- distributions/decreases in the capital of the AIF in accordance with the AIF’s constitutional and/or offering documents;
- distributions/decreases in the capital of the AIF authorised by a resolution of the AIF’s investors; and
- trading of the AIF’s shares or units on a secondary market.
An AIF is considered closed-ended if it is not open-ended in accordance with such criteria. A change of redemption policy can result in an AIF changing from closed-ended to open ended. Where a change in the redemption policy of the AIF has the effect of changing the type of AIFs an AIFM manages, the AIFM must apply the rules relevant to the new type of AIF to that AIF. The RTS will enter into force on the twentieth day following that of its publication in the Official Journal of the European Union (OJ). Publication is expected soon.
Impact; whether an AIFM is an AIFM of open-ended AIFs and/or closed-ended AIFs dictates
- frequency of valuations,
- frequency of calculation of NAV,
- liquidity management arrangements.
The Commission has added a new recital 7 and Article 1 (5) to the ESMA draft RTS of August 2013 which concern the transitional provisions for closed-ended AIFs established before 22 July 2013.
The RTS definition of closed-ended AIF is not aligned with the definition of a closed-ended fund for the purposes of the Prospectus Directive (2003/71/EC), so that the Prospectus Directive will not apply to AIFs which are closed-ended (as determined for the purposes of AIFMD pursuant to the RTS) which provide an opportunity for redemption at the request of investors during theirs liquidation phase or wind-down.