As of January 1, 2018, Alternative Investment Fund Managers ("AIFM") registered under § 2 (4) of the German Capital Investment Code ("KAGB") or the EuVECA Regulation are obliged to create a standardized three-page information sheet (Key Information Document; KID) when marketing fund shares to retail investors.

Retail investors are all investors who are not professional investors within the meaning of the MiFID II Directive. That also includes, in particular, semi-professional investors within the meaning of the KAGB.

AIFMs with a license according to § 20 KAGB are not obligated to create and publish the KID until January 1, 2020 if they have already created a key investor information document (KIID) that meets the requirements laid out in the UCITS IV Directive.

The aforementioned obligations are set out in Regulation (EU) No 1286/2014 on key information documents for packaged retail and insurance-based investment products ("PRIIPs Regulation"). The Delegated Regulation (Commission Delegated Regulation (EU) 2017/653) ("Delegated Regulation") specifies the methods for the preparation, presentation and calculation of the essential elements of such a KID.

We have summarized the essential requirements below.

1. Obligation to create and update the KID

Beginning on January 1, 2018, a KID must be prepared before interests in the AIF are (or are continued to be) sold to retail investors. The PRIIP "manufacturer" is required to publish the KID on its website, where it should be easily retrievable. The manufacturer is responsible for the preparation and publication of the KID. A PRIIP manufacturer is any natural person or legal entity that launches the AIF or makes changes to it, including altering the AIFs risk and reward profile. This is likely to be the AIFM. In certain cases, it could also be another entity, such as the general partner or a marketing partner.

In addition to the obligation to create a KID, an ongoing review and update of the document is required. The manufacturer must review and if necessary update the KID whenever a change occurs that significantly affects the information contained in the key information document and at least every 12 months. The revised version shall be published on the manufacturer's website without undue delay, and retail investors shall be informed about the changes, e.g. via mailing lists or e-mail notifications.

As a general rule, a KID must be created for all AIFs that are distributed to retail investors. The PRIIPs Regulation does not contain an exception for EuVECA funds. Accordingly, a KID must be created for such funds if interests are marketed to retail investors.

The obligation to prepare and revise the KID applies during the distribution period and for so long as the interests in the AIF are traded on any secondary market.

2. General requirements

The Delegated Regulation contains a template for the KID, significant parts of which are mandatory, meaning that they cannot be adjusted. The KID is subject to an overall maximum length of three (single-sided) pages of A4-size paper when printed and must be accurate, fair and clear.

3. Indicators and Performance scenarios

The KID shall contain information on the "summary risk indicator" (SRI). The SRI is intended to ensure the transparency and comparability of different investment products for the benefit of retail investors. We assume that closed-ended AIFs are generally valued with an SRI of 6. For the purpose of calculating the cost indicators, internal calculations by the manufacturer are required. In particular for AIFs which have not already existed for at least three years, estimates of the relevant values are permitted to a large extent.

The KID shall portray different performance scenarios. These scenarios should generally estimate the average annual return for the respective scenarios and make reductions to reflect the total costs that must be disclosed under the Delegated Regulation.

4. Additional Information

The KID must present additional information, in particular a description of the PRIIP (i.e., the interests in the AIF), an explanation of the required holding period of the interests in the AIF and information on the complaint management procedure.

5. Liability

The PRIIP manufacturer incurs civil liability in accordance with national law if the KID is misleading, inaccurate or inconsistent with relevant sections of legally binding contractual documents or with the regulatory technical standards and the investor has incurred damage thereby.

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.