The AIFM Directive - A Compliance Burden or New Distribution Opportunities for the Fund Industry?

English: (Green) the Netherlands. (Light-green... (Green) the Netherlands. (Light-green) The European Union (EU).

Don’t be mistaken by the name: the Alternative Investment Fund Managers Directive (the “AIFMD“) applies to all kind of pooling vehicles. The broad scope of the AIFMD captures many unregulated managers of hedge funds, private equity funds, real estate funds and infrastructure funds that are marketed in the EU as well as pooling vehicles, joint ventures and nominee structures. Also service providers may be impacted, as a substantial part of the value chain will be (indirectly)  subject to the new rules on delegation and depositaries.

The AIFMD applies new rules on the marketing of ‘alternative investment funds’ (each an “AIF“) in the EU by (non) European managers. It also has impact on parties that used to offer their fund participations in the EU on the basis of the so-called ‘private placement regime’. The scope of the AIFMD relates to marketing to professional investors.

An AIFM is defined to include any legal or natural person whose regular business is to manage one or more AIFs. An AIF is defined as a collective investment undertaking (other than a UCITS fund) that raises capital from a number of investors and invests in accordance with a defined investment policy, for the benefit of those investors, regardless its legal structure.

AIFMs will be required to file a license application file at their EU home state supervisor. The regulator must be convinced that the AIFM is able to continuously fulfil the conditions of the AIFMD. The AIFMD outlines requirements in relation to the use of independent valuations, restrictions on delegation and an independent depositary function.  The AIFMD further imposes conditions relating to notification, justification, due diligence and expertise on the delegation of an AIFM’s functions to third parties. The AIFM will be required to monitor any delegate’s activities and replace them where necessary.

As the functions of the depositary are critical for investor protection, all AIFMs will be required to ensure that each AIF they manage appoint an independent and qualified depositary, which will be responsible for the oversight of the AIF’s activities, cash management and ensuring that the AIF’s assets are appropriately protected. Depositaries will be held to a high standard of liability in the event of a loss of assets and the burden of proof will reside with the depositary.

One of the cornerstones of the AIFMD is the introduction of a ‘single market framework’ to regulate the offer or placing of shares or units in an AIF. It introduces a European ‘passport’ under which authorised AIFMs can market EU AIFs to professional investors throughout the EU, subject to a notification procedure.

In the Netherlands, the AIFMD has been implemented in Dutch Act on the Financial Supervision, which provisions has entered into force at 22 July 2013.  From that moment, current AIFM’s have a year (until 22 July 2014) in order to file for a license application. In the meantime however, they are required to comply with the provisions of the AIFMD on a best effort condition. Therefore, fund managers should no longer wait to start becoming compliant with the new requirements of the AIFMD.

For more information contact: Martin Eleveld, Partner Banking & Finance

Email: martin.eleveld@heussen-law.nl or mobile: +31 (0)6 2324 5159

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