UK: AIFM: Some Predictions on the Way Ahead

Last Updated: 21 October 2010
Article by John Langan

European Union ('EU') finance ministers, meeting in Luxembourg yesterday, have reached agreement on the text of the draft of the proposed Alternative Investment Fund Managers Directive ('AIFM Directive') expected to be proposed to the European Parliament for a vote in November.

Whilst it is still not certain that Parliament will accept this latest compromise text, or that further amendments will not be made, some tentative conclusions can at least now be advanced, as regards the shape of things to come.

It has been tempting, over the last eighteen months or so since the first draft of the AIFM Directive emerged, to view the document (along with adverse taxation changes, and other regulatory moves in relation to fund manager remuneration) as part of an increasingly hostile climate for alternative fund managers in the UK.  But is the Directive really likely to drive fund managers to leave the UK?  Or make it less likely that (say) US fund managers will expand their operations, or at least their marketing efforts, into Europe?

It is fair to say that the text has been much modified since its first appearance (and it did need to be).  In its current incarnation, it is also probably fair to say that the Directive, in itself, is unlikely to inspire hedge fund and private equity fund managers to decamp, en masse, for Switzerland or Singapore.  Much is likely to depend on two things: the size of the fund management operation concerned, and the relative importance to that operation of EU based money.

Taking size first of all: the AIFM Directive proposes only 'light' requirements (relatively speaking) for those fund managers whose fund portfolios do not exceed Euros 100 million (including investments 'acquired with leverage': the limit increases to Euros 500 million where the fund portfolio is not leveraged and investors have no rights to redeem within five years of investment, ie the classic private equity structure).  This will therefore exclude many 'friends and family' and other small start-up fund managers (though they will still be obliged to register with their home state regulator and provide basic information on instruments in which they trade and principal exposures, and will not have an EU 'passport' for their funds unless they voluntarily 'opt in').  Note that only fund portfolios count for the purposes of this limit, not 'managed account' and similar non-collective arrangements: some managers may therefore be in a position to avoid the full scope of the Directive by managing large single investors' portfolios through managed accounts, rather than fund structures.  At the small end of the alternative funds industry, we may therefore see little change as a direct result of the Directive, save for an increase in compliance costs and (perhaps) custodian and prime broker fees.

For larger fund managers, based already in the EU, the additional layer of compliance imposed by the Directive, and certain of its more problematic features - for instance, the requirement to defer at least 40% of variable remuneration for three to five years, and to disclose overall leverage to the home state regulator - may not, of themselves, be sufficient of a spur to leave the EU, if a manager has a significant EU investor base (and all else being equal in terms of tax and personal considerations).  The hassle of upping sticks and migrating a whole operation, including relocating staff, reorganising business and contractual structures and disrupting personal lives, may be considered the greater of two evils (especially given the EU passporting rights which are the quid pro quo for the increased level of regulatory pain).

The requirements of the Directive may, however, act as a significant disincentive to (for instance) US fund managers, who might otherwise have considered expanding their operations, or at least their investor base, within the EU.  Again, the result will likely depend on the extent of a fund manager's existing commitment to EU-based investors.  Once existing private placement regimes are phased out (from 2018 onwards, under the present draft), such managers would be required to become authorised pursuant to the Directive in order to market their funds actively (ie otherwise than by 'passive marketing' or 'reverse solicitation') into the EU.  The loss of the private placement exemption will force non-EU managers to take a position on this, one way or the other.

Note that managers who remain EU based, or (if based outside the EU) continue to distribute their funds into the EU, will also need to consider the jurisdiction of choice for the funds themselves: the marketing of non-EU domiciled funds will depend upon (inter alia) the ability of their respective jurisdictions to negotiate the required co-operation agreements with those EU jurisdictions into which such funds are to be promoted.  This seems unlikely however, on the face of it, to prove problematical for the more established offshore jurisdictions.

If anything, it seems clearer now that the markets for alternative funds will bifurcate into those managers with a significant commitment to EU-based investment, and those focussed purely on non-EU investment (from, in particular, the US, Far East, Middle East or Switzerland).  These latter may now see little advantage in moving into the EU.  It will be interesting also to see how the leading offshore (or 'onshore-offshore') financial centres now position themselves, in terms of attracting those investment managers, or at least their funds, who either choose to have an EU focus, or (on the other hand) consciously avoid soliciting EU investment.  One can foresee Ireland and Luxembourg heading the pack (with Malta chasing) on the 'EU-focussed' side of this divide, with the Channel Islands and Cayman Islands, followed by the BVI and Isle of Man (according to the main focus of their various fund industries), heading up the 'non-EU' jurisdictions.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Proskauer Rose LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Proskauer Rose LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions