European Union: The Alternative Investment Fund Managers Directive: Update For Non-EU Managers Of Non-EU Funds

Last Updated: January 30 2014
Article by John C. Ahern, Neil Seaton and Adam Skinner

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.

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
John C. Ahern
 
In association with
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
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

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