Answer ... The structure of an alternative investment fund (AIF) in Australia will usually include an entity that will act as the trustee (or responsible entity, in the case of a registered fund), which in turn will appoint a fund manager (whether a third-party manager or an adviser or affiliate of the trustee) to manage the fund and the assets of the fund. If the trustee of an AIF is an affiliate of the fund manager, the trustee is often formed specifically for the purpose of acting as trustee of that fund. Other appointed service providers can include administrators and custodians.

Answer ... The primary advantage is that investors understand these structures and the roles of the parties, including the clear separation of functions. A possible disadvantage is the marginal extra cost of an additional party.

Answer ... AIF managers must be authorised or licensed to market and distribute the fund or manage the assets of the fund, or must have the benefit of a particular exemption. The fund manager will typically hold an Australian financial services licences (AFSL) (or a ‘foreign AFSL’), or be appointed as an authorised representative of an AFSL holder (which may be the trustee of the fund).

Traditionally, AFSL exemptions were available, on application, to regulated entities in a few recognised foreign jurisdictions which the Australian Securities and Investments Commission (ASIC) regards as having equivalent regulation and supervision as in Australia. For example, an investment adviser regulated by the Securities and Exchange Commission in the United States or by the Financial Conduct Authority in the United Kingdom would typically be entitled to such an exemption (upon application). That exemption process, however, was replaced from 1 April 2020 by a foreign Australian financial services licence regime, which requires these foreign entities to apply for a ‘foreign AFSL’.

Answer ... Obtaining an AFSL involves a merits-based application to ASIC. The application must include evidence of compliance and governance arrangements supporting compliance with financial services laws and the policies of regulators (including ASIC), including financial regulatory capital, conflict management, risk management and other measures. The applicant must put forward submissions demonstrating organisational competency, and include detailed background information of several nominated responsible managers and criminal and credit checks and references.

Australian financial services licensing of foreign financial services providers: Following a consultation process, ASIC has proposed the adoption of a ‘foreign AFSL’ regime for offshore asset managers that are interested in advisory or asset management relationships with wholesale clients in Australia. The foreign AFSL regime mirrors the existing AFSL regime, subject to the relaxation of a number of regulations where the foreign financial services provider is otherwise regulated under a sufficiently equivalent foreign regulatory regime. The foreign AFSL regime was introduced on 1 April 2020 and is intended to replace the passport regime currently relied on by foreign financial services providers from a number of jurisdictions with regulatory regimes that are viewed as sufficiently equivalent to the Australian regime. Under prior law, foreign financial services providers that are regulated by their equivalent securities regulator in the United States, the United Kingdom, Hong Kong, Singapore or Germany may (upon application) access relief from the need to hold an AFSL to provide financial services to wholesale clients in Australia.

Answer ... The process is to complete an online application and lodge the documents and proofs requested. Three months to six months is the typical timeframe. The application must include evidence of compliance and governance arrangements supporting compliance with financial services laws and the policies of regulators (including ASIC), including financial regulatory capital, conflict management, risk management and other measures. The applicant must put forward submissions demonstrating organisational competency, and include detailed background information of several nominated responsible managers and criminal and credit checks and references.

Answer ... The main restrictions and requirements applicable to AIF managers and advisers in Australia are the licensing requirements. Other financial services laws may apply, including privacy legislation, anti-corruption/bribery law and anti-money laundering and counter-terrorism measures.

Answer ... If an AIF is not registered, there is no limit on the restrictions that can be included in the fund constitution regarding the issue, redemption or transfer of interests in the fund, subject to adequate disclosure. The same generally applies if an AIF is registered, except that there are requirements regarding the timing and apportionment of redemption payments if the fund is illiquid and in relation to the suspension of redemptions in the case of a liquid fund.

Answer ... ASIC applies fit and proper checks prior to licensing AIF managers. A change in control of a licensed entity will also trigger an ASIC review.

Answer ... As the holder of an AFSL, an AIF manager is generally entitled to provide investment management services to wholesale clients, including under a segregated mandate agreement with an institutional investor client. There are no specific requirements relating to the ability of an investment manager to delegate to third-party managers and advisers, provided that those parties are appropriately licensed and authorised.

Answer ... An investment manager which is appropriately licensed and authorised under an AFSL can provide investment management services to clients other than AIFs, subject to appropriate governance and competency.