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The draft Directive on Alternative Investment Fund Managers
Practical Law UK Legal Update 8-385-9674 (Approx. 3 pages)
The draft Directive on Alternative Investment Fund Managers
by Michael Newell, Norton Rose LLP
| Published on 28 May 2009 |
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On the 30 April 2009, the EU Commission published its proposal for a Directive on Alternative Investment Fund Managers. This article takes a look at what the draft Directive covers and at some of the key concerns it has raised in the industry.
What it covers
The European Commission has published its draft Directive on Alternative Investment Fund Managers (AIFM Directive). Rather than introduce European legislation for alternative investment funds (AIFs), the AIFM Directive introduces an authorisation and supervisory regime for alternative investment fund managers (AIFMs).
The new regime targets AIFMs providing management or marketing services to AIFs from within the EU, other than:
- AIFMs managing AIF portfolios that:
- have total assets of less than EUR100 million; or
- are unleveraged, have total assets of less than €500 million and do not permit redemptions for the first five years.
- UCITS, EU authorised credit institutions and pension funds.
So the Directive catches nearly all funds that are not currently subject to product regulation (and even some that are), regardless of domicile or form, in excess of those thresholds.
Relevant AIFMs must be authorised to provide management services to, or market the shares or units of, AIFs within the EU. Authorisation is granted to the AIFM by its home Member State regulator. Once authorisation has been granted it is valid for operating in all Member States.
The Directive contains conduct of business obligations for AIFMs, which are very similar to the equivalent provisions of the Markets in Financial Instruments Directive (MIFID), and capital requirements which closely follow the regime for UCITS management firms. Provisions relating to outsourcing and delegation to third parties are significantly more restrictive than are imposed on investment firms under MIFID.
Key concerns
By requiring AIFs marketed in the EU to meet certain structural requirements, such as an independent valuation and a depositary, the Commission is moving away from the flexibility currently permitted to AIFs. At this stage the draft proposals are unwieldy for many strategies; for example it is difficult to see how the depositary rules sit comfortably with many limited partnership funds, funds employing prime broking strategies or funds with a multi-manager strategy.
Some of the most controversial provisions in the AIFM Directive are:
- Those requiring the Commission to impose limits on the leverage that AIFMs may employ.
- Those requiring AIFMs to monitor and report high levels of leverage.
- The notification and detailed reporting requirements on AIFs that acquire controlling stakes in companies.
- (initially) a complete ban on AIFMs marketing non-EU domiciled products.