Tag: AIFM

Looking to Europe

EU-flag

A new regulatory regime is scheduled to impact fundraising in Europe starting this summer. The new regulatory structure known as the Alternative Investment Fund Managers Directive (AIFM) has a July 22 effective regulatory date. The effect will be felt if you are a EU-based fund manager or want to market to EU-based investors.

For U.S.-based managers falling under the AIFM there will be three main requirements:

  1. Disclosure to investors before they decide to invest
  2. Annual report to investors.
  3. Disclosure with regulators.

Even with the approaching deadline, there is still a lot of uncertainty. With EU Directives, it’s up to each member state to decide how to implement it. The UK has announced it will require a fund to register and the Financial Services Authority will have some oversight and will require Form PF-like data. Germany will likely implement a much stricter approach.

The main documents involved are the 2011/61 Directive (.pdf) and the Delegated Regulation (.pdf) that provides additional coverage of some aspects of the Directive. The third is the final report of Guidelines on sound remuneration policies under the AIFMD (.pdf).

If you have EU investors in your U.S.-domiciled fund but you don’t intend to market it anymore in Europe, you probably don’t have to worry about the AIFM directive. However, if you do intend to solicit European investors, you’re probably looking at a July 2014 compliance deadline.

There are some minimal thresholds. For hedge funds, an adviser must manage at least 100 million Euros in assets and for private equity funds the adviser must top a 500 million Euros threshold to fall under the directive. However, member states may reduce these thresholds even lower.

If you have European investors in your US fund or have European operation, the AIFM will start taking up a bunch of your time in the next few months.

Sources:

Update on the European Directive to Regulate Alternative Investment Fund Managers

eu

The draft Directive on Alternative Investment Fund Managers pdf-2 was published on April 30, 2009. The Proposed Directive has been subject to lots of criticism. Many of the provisions in the Proposed Directive misunderstood the characteristics of different types of alternative investment funds.

It now seems the Proposed Directive will be implemented in one form or another. (The EU’s focus on financial market reform has not been distracted by health care reform like happened here in the US.)

The first problem with the proposed directive is that it has broad definition of “alternative investment fund” so it can sweep up all hedge funds. It seems the the Presidency of the European Council has noticed that the existing definition would capture funds that clearly should not be the target of the Proposed Directive. [see AIFM Issues Note from the EU Presidency]

Unless non-EU managers comply with the rules within three years of the Directive coming into force (probably around 2015) they will be barred from offering their products in the EU. Britain, another center of hedge funds and private equity is campaigning to water down the directive. France, Spain and Germany seem to be very pro-directive and in favor of stiffer regulations.

Britain’s financial services minister, Paul Myners, told a conference: “Smell the coffee! There is going to be a directive.”

For more detail read a client alert from Shearman & Sterling: Update on the European Directive to Regulate Alternative Investment Fund Managers.

References:

EU Proposes Directive on Alternative Investment Fund Managers

eu

The European Commission published a draft Directive on Alternative Investment Fund Managers to establish a common regulatory and supervisory framework for all investment managers of funds promoted to investors in the European Union and not currently subject to European level regulation. Though the measure is directed at the hedge fund industry, the Directive would affect the operations of managers of all funds that are not registered as UCITS (Undertakings for Collective Investments in Transferable Securities), including private equity, real estate, infrastructure and venture capital funds.

The Directive is at an early stage of the legislative process and may be subject to significant change before it is adopted. Even in its current form it will not come into force before the end of 2011 and the proposals relating to the promotion of funds incorporated outside the EU will not come into force for a further three years after that. I expect there will intense lobbying from the financial services industry and the hedge fund industry.

The Directive is mainly driven by the European Commission’s aim to get control over what it perceives as systemic risks in unregulated fund markets. There is a set of regulations focused on managers domiciled in the EU and a second set on funds marketed in the EU.

References: