European Union: Single Family Offices And The AIFMD - Should You Be Bothered?

Last Updated: 10 November 2014
Article by Kirsten Lapham

Many were relieved to see that single family offices were one of the groups specifically exempt from the Alternative Fund Managers Directive ('AIFMD'). The AIFMD is the biggest development in the fund management industry in recent times and all its requirements became directly applicable from July 2014.

Despite the exemption for single-family offices, the AIFMD may still have unexpected specific consequences for single family businesses, or, at least, for family single offices managing the wealth generated by large single family businesses.

The specific exemption does not apply to multi-family offices. Please contact us if you require advice to how the AIFMD affects a multi-family office.

What does the AIFMD do?

The AIFMD makes managers of alternative investment funds ('AIFMs'), and the funds themselves ('AIFs') subject to regulation on a pan-European basis. The main driver behind the AIFMD is the impact on the EU's financial stability and the EU's desire to regulate more intensely the larger hedge funds and private equity groups.

Any entity that manages a collective investment scheme ('CIS'), which is not a UCITS, is likely to be an AIFM managing AIFs for the purpose of the AIFMD. Given the extremely broad definition of AIFs, single family investment vehicles and offices are specifically exempted from the AIFMD in circumstances where 'the investment [is] in an undertaking by a member of a group of persons connected by a close familial relationship ...'

Recital 7 to the AIFMD provides a carve-out which applies to single family offices that do not accept external capital: 'family office vehicles which invest the private wealth of investors without raising external capital, should not be considered to be AIFs in accordance with this directive. '

In other words, the AIFMD should not affect a single-family office if that office deals exclusively within that single family. However, if a single-family office enters into an investment alongside other investors (where no such family relationship(s) exists) that office could come within the AIFMD's remit. Even if the family office would not usually consider itself to be a multi-family office. Any such arrangement could be viewed as a CIS and the raising of capital from third party sources within the scope of the AIFMD. If there is a structure that can be construed as a CIS (i.e., pooling of capital with a view to generating a return), it could be considered an AIF and thus within the scope of the AIFMD. This could still capture those single family offices who consider themselves to deal exclusively for 'family and friend' investors.

The key areas of regulation under the AIFMD include:

  • expanded reporting and disclosure obligations, to both regulators and investors
  • the imposition of various governance and conduct of business standards above and beyond those already imposed by national regulators
  • the imposition of rules around the use of prime brokers and depositaries/custodians
  • a requirement that managers retain regulatory capital explicitly based on assets under management
  • new regulations concerning remuneration

What does this mean for single and multi-family offices?

Costs under the AIFMD will increase for single-family and multi-family offices, which must now either ensure that they are AIFMD compliant, or that they do not fall within the scope of the AIFMD. In addition, given that they pass the compliance costs on to the end user, funds in the EU are likely to become more expensive for their investors, which is a key issue for family businesses and those who run family offices who invest in such funds. Family offices need to be certain that their own structures either do fall outside the AIFMD or that they are compliant with AIFMD regulation. Even if they do not fall within the AIFMD, they should consider seeking advice about how the AIFMD applies to their business the funds invested in, to ensure that the regulatory requirements under the AIFMD are met.

Family offices based outside the EU

One additional group that is exempt from the full repercussions of the AIFMD are AIFMs that market AIFs to EU investors via national private placement regimes. Most of the managers that fall within this category are based outside the EU so this would apply to non-EU family offices seeking to raise capital from EU investors. To do so, a non EU manager must comply with requirements set by national private placement regimes, which may vary. For example, regulations 57, 58 and 59 of the UK Alternative Investment Fund Managers Regulations 2013, requires managers using the national private placement regime in the UK to notify the FCA and demonstrate that the regime by which the AIF is regulated meets international standards.

The workings of the national private placement regimes will be reviewed by the European Securities and Markets Authority ('ESMA') in 2015. This may require an EU marketing passport to be issued to non-EU managers as a result of that review. It is expected that all the national private placement regimes will be abolished in the full review of the AIFMD in 2018.

What should family offices do?

  • Family offices should review their structures to ensure they definitely do not manage AIFs and are not inadvertently breaching AIFMD requirements
  • Where family offices deal with a small amount of external capital, they should consider whether or not the trade-off between having access to that capital and the extra costs of complying with the AIFMD regime continues to make economic sense
  • Where family offices are close to the €100 million threshold and manage AIFs that accept external capital, they should consider whether they are prepared to take the risk that they may exceed that threshold and whether they are prepared to comply with the full scope of the AIFMD if they do. If not, they may wish to consider redeeming units, or restructuring their operations by closing or floating off AIFs to stay beneath this €100 million threshold. Another option maybe to convert AIFs into managed accounts, which do not fall within the scope of the AIFMD
  • Where family offices deal with external capital and expect to fall within the small AIFM regime, they should consider whether their current reporting capabilities will enable them to provide the sorts of information that will need to be filed annually. Family offices should consider whether they will need further services from existing third party providers, or whether new providers will be required to enable compliance
  • Family offices should be aware that as well as impacting AIFMs, the AIFMD also contains extensive provisions relating to the activities of prime brokers and depositaries/ custodians in relation to AIFs. Prime brokers and depositaries/custodians will likely be reviewing documentation and will likely need to discuss the renegotiation of terms with family offices.

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
 
In association with
Related Topics
 
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