In some respects the wait is over. 22 July 2013, the date for the national transposition of the Alternative Investment Fund Managers Directive ("AIFMD") across Europe is here. There is now a new regulatory regime and set of rules governing managers of non-UCITS funds (alternative investment fund managers, or "AIFMs") and the distribution of their products (alternative investment funds, or "AIFs"). But most managers can continue and are continuing to manage and market their funds today just as they did yesterday. So why, for all the change in law and regulation (see here a link to the FCA's new FUND sourcebook and here a link to the new Alternative Investment Fund Managers Regulations 2013), has there been so little change in practice? For how long will this 'business as usual' phase last? And when will managers need to start dusting the cobwebs off their AIFMD project plans?
It would seem that, owing to transitional periods being offered by countries across the EEA, the watershed moment in asset management regulation is not so much 22 July 2013, as 22 July 2014.
Most EEA countries are offering transitional periods for both the managing and marketing of AIFs. This is, however, complex terrain in respect of which local law advice should be sought. Not all EEA countries have approached the provision of transitional periods the same way.
The AIFMD prevents a manager from managing its AIFs unless the manager is authorised to do so. In the UK, this means that a manager must hold the permission to carry on the new regulated activity of 'Managing an AIF'. The vast majority of managers in the UK will not have acquired this permission by 22 July 2013. Does this mean that they will need to cease managing their AIFs? Not yet. Under transitional arrangements, an existing manager in the UK will have until 22 July 2014 to submit an application to the Financial Conduct Authority ("FCA") for this permission. Until then, it can rely on its existing 'Part 4A' permission. The exception to this is a manager that intends to restructure its business such that it ceases to manage AIFs before 22 July 2014 - the 'Managing an AIF' permission would not then be required.
The FCA has repeatedly made clear that they do not wish (and may not have capacity) to process, all at once, the majority of the industry's applications. It is therefore advisable to make applications well in advance of 22 July 2014.
The AIFMD prevents marketing to EEA investors within the EEA unless:
- for funds managed by an EU AIFM, that manager is authorised under the AIFMD. Authorised managers can gain access to an AIFMD marketing passport, which permits funds to be sold across the EEA; or
- for funds managed by a non-EU AIFM, that manager complies with the marketing conditions imposed by the AIFMD (in addition to national private placement rules).
Does this mean that managers that do not meet one of the above conditions will need to cease marketing their AIFs from 22 July 2013? The answer depends on where the fund in question is being marketed (not where the manager is based).
In some target marketing countries, marketing can continue uninterrupted without a change in practice. In other countries marketing will need to stop (at least for some funds) and in others the position is unclear.
- Countries that offer an inward marketing transitional period on a 'manager basis' (e.g. the UK). Until 22 July 2014 a manager, even if not authorised under the AIFMD or otherwise compliant with marketing conditions, will be able to continue to market in the UK if that manager had marketed any fund to any EEA investor in the EEA prior to 22 July 2013. Other countries have implemented similar 'manager level' transitional provisions, although these usually require the manager to have marketed any fund in the particular country (rather than anywhere in the EEA).
- Countries that offer an inward marketing transitional period on a 'fund basis' (e.g. Germany). A manager, even if not authorised under the AIFMD or otherwise compliant with marketing conditions, will be able to continue to market a particular fund in these countries if that fund had been marketed in that country prior to 22 July 2013. Funds that had not been marketed prior to 22 July 2013 will not be able to be marketed in these countries otherwise than in compliance with the AIFMD. Clearly this will affect the raising of capital for new funds.
- Countries that have not nationally transposed the AIFMD in time. Norway and Belgium are examples of countries that have not transposed the AIFMD into national law. Marketing in Norway, it seems, will be on a business as usual basis until the AIFMD is brought into law there. In Belgium the position is less clear. It appears that some degree of 'voluntary' compliance may be required notwithstanding that the AIFMD has no force of law. As should be the case prior to marketing in any EEA country, local law advice should be taken prior to marketing in Belgium and other such countries that have not transposed the AIFMD.
Managers who had not been advised to assess their marketing needs prior to 22 July 2013 and map them against the transitional regimes in the relevant countries will need to do so immediately unless (i) they are authorised as an AIFM and can market using the AIFMD marketing passport (and thus do not need to avail themselves of any transitional regimes) or (ii) they do not intend to distribute their AIFs in the EEA. It is critical that a manager does not assume that just because an EEA country offers a transitional period, that the manager will actually qualify to avail itself of the same. Advice must be sought in relation to that country.
It should also be noted that there are other miscellaneous transitional/grandfathering provisions being offered in the UK (most of which apply in respect of closed ended funds).
It is important to determine when a UK manager should seek its FCA permission for 'Managing an AIF'. This may be driven by, among other things:
- the realisation that it does not qualify for a marketing transitional period in a key country (in which case that manager will want to seek authorisation immediately);
- by the desire to seize a particular marketing opportunity in a country which previously had been relatively inaccessible, such as Italy or France. Authorised managers will find themselves able to approach these investors in a newly unconstrained way, protected by the AIFMD marketing passport available to AIFMD authorised managers; or
- a desire to avoid getting caught up in the FCA resourcing bottleneck that will, it seems, inevitably materialise in early 2014, when the vast majority of managers currently in 'wait and see' mode make their applications for authorisation.