EU: The Alternative Investment Fund Managers Directive

Question 1

Briefly explain what the AIFMD is

Answer 1

Alternative Investment Fund Managers Directive

1. Implemented in 2013
2. Covers the management, administration and marketing of alternative investment funds. (AIFs)
3. AIF is a collective investment undertaking that is NOT subject to the UCITS directives.
4. Includes hedge funds, private equity funds, retail investment funds, investment companies, and Real Estate funds
5. Focus is to regulate AIF managers (AIFM) rather than the AIFs themselves
6. Also includes capital obligations, organisational and governance requirements.
7. Regular disclosure of information to investors
8. AIFMD‘s reporting regulations say that each AIF should be named using a series of codes.

Question 2

What is the authorisation criteria for an AIFMD?

Answer 2

AIFMD requires authorisation on their allocated AIFM from their home state regulator if they have assets under managements in AIFs above:

1. €100m, if any of the AIF uses leverage (borrowing to invest)
   OR
2. €500m if AIF doesn’t use leverage and do not give their investors a right of redemption/ withdraw money within 5 yrs of initial investment in each AIF

Question 3

What is the authorisation criteria for an AIFMD under €100m?

Answer 3

1. Deemed to be “sub-threshold” and lighter regulation applies.
2. For sub-threshold AIFMs - FCA Senior Management Arrangements, Systems and Controls (SYSC) and Conduct of Business Sourcebook (COBS) apply
3. A UK sub-threshold AIFM cannot benefit from the EU marketing passport under the AIFMD.
4. Any marketing in the EU must comply with local private placement regimes

Question 4

What are the two types of sub-threshold AIFM that are below the €100m threshold?

Answer 4

1. Small authorised UK AIFM is:
   A. FCA-authorised
   B. Not opted in to the AIFMD (relevant for most private fund managers)
2. A small registered UK AIFM is:
   A. An internal AIFM of a corporate body such as an investment trust
   B. The unauthorised manager of property funds, which are operated by FCA-authorised operator
   OR
   C. Fund manager that has applied for registration under the European Venture Capital Funds Regulation or the European Social Entrepreneurship Funds Regulation.

Question 6

What are some other important AIFMD requirements?

Answer 6

1. All AIFMs must submit information on the AIFM and its AIFs quarterly, semi- annual or annual reports to their respective EU member state regulator
2. AIFMs must also submit an annual report with information on fund’s financial statements, activities and total remuneration by the AIFM to its staff
3. AIFMs must disclose the extent of the leverage employed within their funds and prove that leverage has been limited to a reasonable amount.
4. Each fund can only have one AIFM but, the AIFM can delegate certain functions to other entities.
5. Authorised fund managers located within the EU are permitted to market their EU funds to professional investors in any EU member state under the AIFMD passport.

Question 7

AIFMD’s require AIFMs to select only brokers and counterparties that are:

Answer 7

1. Subject to regulatory supervision.
2. Financially sound, and
3. Have the necessary organisational structure to provide services to the AIFM or the AIF.

Question 9

After the UK’s withdrawal from the EU, is the AIFMD marketing passport still available to UK AIFMs?

Answer 9

1. No
2. The AIFMD marketing passport is only available to EU AIFM’s.
3. UK AIFMs will not be able to use the passport to market the EU or UK AIFs
4. One option available to UK AIFs is to use the National Private Placement Regime (NPPR) for any AIFs as set out in Article 42 of the AIFMD.
5. UK has created a UK AIFMD regime for AIFs operating in the UK by effectively implementing the EU regime into the UK law