AIFMD’s Impact On Non-EU Managers Of Non-EU Alternative Investment Funds

With AIFMD taking effect, non-EU alternative investment fund managers should be aware of a new regime governing their marketing of such funds into the EU—the AIFMD's private placement overlay.

On 22 July, the deadline passed for EU[1] member states to implement the Alternative Investment Fund Managers Directive (AIFMD) into local law. Member states that met the deadline include the Czech Republic, Cyprus, Denmark, Germany, Ireland, Luxembourg, Malta, the Netherlands, Slovakia, Sweden, and the United Kingdom. Those that missed the deadline must continue to progress towards implementation. AIFMD establishes an EU-wide harmonised framework for monitoring and supervising risks posed by alternative investment fund managers (AIFMs)[2] and the alternative investment funds (AIFs)[3] they manage.[4] AIFMD requires the authorisation of AIFMs and contains provisions relating to how AIFMs conduct their business, transparency, and marketing. In return, AIFMD confers on an authorised AIFM both a pan-EU managing passport and a pan-EU marketing passport. It also regulates the marketing of AIFs in the EU by non-EU AIFMs.

Background

The path to implementation has been long, with the first version of the draft directive published in April 2009. Following a protracted negotiation phase at the EU level, the final and heavily amended text of the directive entered into force on 21 July 2011.

AIFMD applies to EU AIFMs who

manage one or more AIFs (irrespective of domicile); and market[5] their AIFs to EU professional investors.[6] EU AIFMs are subject to the full rigour of AIFMD from 22 July 2013, subject to a transitional regime for AIFMs existing before 22 July 2013. These AIFMs have until 22 July 2014 to apply for authorisation under AIFMD and to continue to market AIFs in the EU under national private placement regimes (NPPRs). Once authorised under AIFMD, EU AIFMs may only market EU AIFs[7] in the EU using the passport. EU AIFMs may market non-EU AIFs (including EU feeder AIFs with a non-EU master AIF) in the EU under NPPRs until at least 2018 and may be given passports in 2015.

AIFMD applies extraterritorially to non-EU AIFMs who market AIFs to EU professional investors. From Q3/Q4 2015, non-EU AIFMs who manage EU AIFs will be required to be authorised under AIFMD in their chosen member states of reference in 2015, whether or not they market to EU professional investors.

Non-EU AIFMs may be given a passport to market AIFs to EU professional investors in 2015. If so, non-EU AIFMs who wish to use the passport must be authorised under AIFMD in their chosen member states of reference and must comply with the various regulatory requirements that authorisation implies, including those relating to financial resources, disclosure and transparency, limits on leverage, the appointment of a depositary, and remuneration. If the passports are provided, it will be the first time an EU single-market directive has granted non-EU-based businesses pan-EU passports.

Non-EU AIFMs managing non-EU AIFs and not marketing them in the EU are not subject to AIFMD.

There are a number of exemptions from AIFMD, including the following:

AIFMD allows member states to establish a de minimis registration and reporting regime for AIFMs managing AIFs with assets under management that are below certain thresholdsso-called "small AIFMs"[8]and allows them to impose additional requirements. Small AIFMs are not required to be fully authorised under AIFMD, may market AIFs they manage in the EU without compliance with the private placement overlay, and are not eligible for the passport under AIFMD unless they opt in by becoming fully authorised under AIFMD. Reverse solicitation or nonsolicited sales are exempt from AIFMD. Recital 70 of AIFMD states that AIFMD "should not affect the current situation, whereby a professional investor established in the [EU] may invest in AIFs on its own initiative". With reference to the definition of "marketing" under AIFMD, the relevant offer or placement must be at the investor's initiative rather than...