The Alternative Investment Fund Managers Directive (the
"AIFMD") is a European Union ("EU") Directive
that came into force on 22 July 2013 and aims to implement a
coordinated regulatory framework for alternative investment fund
managers ("AIFMs") of alternative investment funds
("AIFs").
Given that the AIFMD is an EU Directive (a legislative act of the
EU which requires member states of the EU to implement the desired
result without actually dictating the means by which this must be
achieved), non-EU AIFMs (especially of non-EU AIFs) could be
forgiven for questioning how and why it could apply to them.
However, the AIFMD's application is relatively wide and does
have an impact on such managers.
This brief Commentary is intended to provide non-EU AIFMs
managing non-EU AIFs with an introduction to the key concepts under
the AIFMD and a summary of the aspects of the AIFMD which are most
relevant to them.1
Background: Application and Key Concepts
Generally speaking, the AIFMD applies to and regulates AIFMs rather than AIFs themselves (in contrast to the Directive on Undertakings for Collective Investment in Transferable Securities ("UCITS"), which regulates funds as well as managers). Subject to certain exemptions,2 the AIFMD applies to:
- All EU AIFMs managing EU AIFs or non-EU AIFs (irrespective of where they are marketed);
- Non-EU AIFMs managing EU AIFs (irrespective of whether they are marketed in the EU); and
-
Non-EU AIFMs marketing AIFs (whether EU AIFs or non-EU AIFs) to EU investors.
It is the last of these three categories upon which this
Commentary focuses.
What is an AIFM? An AIFM is any legal person
whose regular business is managing one or more AIFs.
"Managing" for these purposes is broadly defined as
providing investment management services (being portfolio
management and/or risk management).
What is an AIF? An AIF is any collective
investment undertaking which raises capital from a number of
investors with a view to investing it for the benefit of those
investors according to a defined investment policy. Broadly, all
funds which are not covered by the UCITS Directive may be caught by
the AIFMD, save for those structures specifically carved out or
exempted from its scope.
The long-term aim of the AIFMD is that all firms within its scope
will eventually be authorised and regulated by an EU financial
services regulator. However, the AIFMD provides for a transitional
period, and the majority of the provisions will not apply to non-EU
AIFMs of non-EU AIFs for a considerable period of time.
The transitional period under the AIFMD is a one-year grace period
for AIFMs that were managing AIFs or, in the case of non-EU AIFMs,
that were marketing AIFs to EU investors before 22 July 2013. To
the extent that the transitional period is available to non-EU
AIFMs marketing non-EU AIFs, they can continue to market as
previously in accordance with the relevant national private
placement regimes. If a non-EU AIFM cannot make use of the
transitional provisions, it will have to abide by the applicable
requirements of the AIFMD, primarily the marketing regime.
Marketing under the AIFMD
"Marketing" is defined in the AIFMD as any direct or
indirect offering or placement to investors in the EU at the
initiative of the AIFM or on behalf of the AIFM of units or shares
in an AIF it manages. Marketing is understood to cover capital
raising and thus does not include "secondary markets"
unless such activities include additional capital raising.
Furthermore, the AIFMD does not apply to passive marketing or
reverse solicitation.
As ever, caution should be exercised when seeking to rely on a
reverse solicitation carve-out. Recent guidance from the UK's
Financial Conduct Authority (the "FCA") provides
significant assistance to AIFMs in this respect insofar as reverse
solicitation is to be interpreted in the UK. The FCA's guidance
states that: "a confirmation from the investor that the
offering or placement of units [or] shares of the AIF was made at
its initiative, should normally be sufficient to demonstrate that
this is the case, provided this is obtained before the offer or
placement takes place. However, AIFMs and investment firms should
not be able to rely upon such confirmation if this has been
obtained to circumvent the requirements of AIFMD". It is
important to note that this guidance is only in respect of the UK
and it will be interesting to see whether the authorities in other
member states follow this approach; however, it should help AIFMs
seeking to utilise reverse solicitation to update their marketing
and subscription agreements accordingly.
Under the AIFMD, an EU passport is being introduced to allow AIFMs
to market AIFs to professional investors across the EU. With the
exception of EU AIFs managed by EU AIFMs (for which the EU passport
will be the sole means of marketing), the EU passport will become
available in 2015 (at the earliest) and will run in parallel with
national private placement regimes until at least 2018.
Non-EU AIFMs managing non-EU AIFs may be able to market using the
EU passport from, at the earliest, the second half of 2015 provided
that they are authorised under the AIFMD in the relevant member
state of reference, comply with the AIFMD in full and satisfy
certain cooperation agreement requirements.3
Non-EU AIFMs managing non-EU AIFs may market using national
private placement notes until 2018 (at the earliest) without being
authorised, provided that the AIFM complies with the following:
- The non-EU AIFM must comply with certain provisions of the AIFMD relating primarily to transparency requirements, disclosure to investors, reporting obligations to regulators, control of unlisted companies and "asset stripping".
- Appropriate co-operation arrangements in respect of "systemic risk oversight" must be in place between the member states where the AIF is to be marketed and the jurisdiction of establishment of the AIFM so as to ensure exchange of information, as required by the AIFMD.
- The jurisdictions where the AIFM and AIF are established must not be on the FATF Blacklist.
The use of the national private placement regime may be phased
out by the European Commission following reports on the same from
ESMA by 2018/2019 but, until such time as that occurs, it is
expected the majority of non-EU AIFMs marketing non-EU AIFs will
continue to use this route which will run alongside the EU passport
regime.
Having said that, such AIFMs will need to be wary of complying
with the relevant aspects of the AIFMD and ensuring that their
marketing activities are up to date with any changes which may be
made to national private placement regimes in member states. For
example, the UK has stated that its national private placement
regime will remain largely unaltered but that the FCA will require
that AIFMs notify them if they intend to market AIFs in the UK. The
FCA has a dedicated web page where details of the notification
forms can be found (www.fca.org.uk/firms/markets/international-markets/aifmd/nppr).
In summary, non-EU AIFMs seeking to market non-EU AIFs to
investors in the EU need to be aware of the requirements of the
AIFMD in respect of marketing, even when using existing national
private placement regimes and especially if the transitional period
is not available. Legal advice should be sought as to the
applicability of transitional provisions and the requirements of
national private placement regimes in individual member states.
Footnotes
1.To the extent that a more detailed analysis of the AIFMD is required, Jones Day has published a full Commentary on the AIFMD, which can be found on our website: http://www.jonesday.com/alternative_investment_fund_managers_directive/ .
2.There are exemptions from the AIFMD for AIFMs that solely manage closed-ended AIFs which either (i) do not make further investments after 22 July 2013 or (ii) have a lifespan which will expire by 22 July 2016 and which closed their subscription period before 22 July 2011.
There is also a partial exemption for small AIFs, and the following structures are also carved out from the AIFMD's scope: joint ventures, family offices, holding company structures, pension funds, employee participation or saving schemes, securitisation, special purpose vehicles, national central banks or national, regional or local governments.
3.A supervisory cooperation agreement must be in place between the competent authority of the member state of reference and the jurisdiction where the AIFM is established; the jurisdiction of establishment for the AIFM and the AIF must not be on the FATF Blacklist; and taxation agreements must exist between the jurisdictions of establishment for the AIFM and the AIF and each member state where the AIF will be marketed and the member state of reference.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.