What is the AIFMD?
The AIFMD came into force on 21 July 2011 and will bring a wide range of currently unregulated funds under the regulatory framework of the European Union (EU). Each EU member state will be required to transpose the AIFMD into national law by 22 July 2013.
The AIFMD creates a comprehensive EU-wide regulatory and supervisory framework for the management of alternative investment funds (AIFs). It lays down rules for the authorisation, ongoing operation and transparency of managers of AIFs. An AIF is defined as any collective investment undertaking (which is not an undertaking for collective investment in transferable securities (UCITS)) which raises capital from a number of investors for investment in accordance with a defined investment policy for the benefit of those investors.
All non-UCITS open and closed end funds will be caught by the AIFMD unless a specific exemption applies to them (discussed further below). A wide range of AIFs are captured by the AIFMD including real estate funds, hedge funds, private equity funds, commodity funds, debt funds, energy and carbon funds, infrastructure funds, investment trusts and real estate investment trusts.
The scope of the AIFMD is wide and will apply to any legal person appointed by or on behalf of the AIF who will be responsible for managing one or more AIFs. It will also apply to “internally managed” AIFs, where the governing body elects not to appoint an external fund manager. It will therefore be important for external fund managers to understand their position and identify whether they are appointed by or on behalf of the AIF, or as a delegate of the person appointed. ‘Managing’ means providing risk management or portfolio management services to the AIF. This distinction will need to be made in order for fund managers to understand how and when the AIFMD applies to them.
The AIFMD will not apply to the managers of:
- one or more AIFs whose only investors are companies within the same group as the manager (provided that none of these investors itself is an AIF); and
- “small” AIFs with aggregate total assets of (a) less than €100 million, including any assets financed through leverage; or (b) less than €500 million, subject to the AIF not having any debt and not having redemption rights during a period of five years following the date of initial investment in the AIF; and
- certain securitisation special purpose vehicles.
Managers of small AIFs will however be subject to separate compliance obligations. The nature of the obligations of such managers is being finalised, and is expected to include the obligation to:
- register with the competent authorities in their home Member State;
- notify the competent authorities of any AIFs they manage, and provide information on their investment strategies;
- provide regular information to the competent authorities on the main instruments in which they are trading, principal exposures and most important concentrations; and
- notify the competent authorities if they no longer meet the size conditions above and (where this is the case) apply for full authorisation within 30 days.
The passporting system
As of 2013, EU fund managers authorised under the AIFMD will be permitted to market their funds to professional investors across the EU in reliance on a passport. In effect, this passporting system will ensure that EU fund managers do not require a licence to market their funds in other member states. As of late 2015, this passporting system may (if recommended by the European Securities and Markets Authority (ESMA)) be extended to allow non EU fund managers to passport their non EU AIFs throughout the EU (and it may become compulsory from late 2018). Non EU fund managers wishing to use the passport will have to become authorised in the EU and comply with the AIFMD’s requirements in full. Until 2015, non EU fund managers’ only option will be to market in the EU using national private placement regimes (provided certain preconditions are met (see section 2 below)). From 2015 until late 2018, they will be able to choose between private placement and the passport.
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