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A Introduction
Implementation of the Alternative Investment
Fund Managers Directive (AIFMD) is due to come
into force on 22 July 2013, with the result that all
alternative investment fund managers (AIFMs)
must be appropriately authorised to manage
alternative investment funds (AIFs) which are
established or marketed in the EU.
An AIFM is anyone who, at a minimum, either
performs portfolio management services or
risk management services for an AIF and an AIF
means virtually any fund, regardless of structure,
jurisdiction or investment strategy, other than a
UCITS fund.
The AIFMD introduces a new European passport
system for the marketing of AIFs throughout
the EU to professional investors, which will
automatically be available to EU authorised
AIFMs managing EU AIFs on transposition of
the AIFMD.
However, an equivalent passport for non-EU
AIFMs will not be available until 2015 at the
earliest, which means that non-EU AIFMs will
need to consider how they can continue to
market in the EU after 22 July 2013.
The following summary sets out those issues
which need to be considered by a non-EU AIFM
marketing and/or managing funds in the EU and
the effect of the implementation of the AIFMD
on the non-EU AIFM’s operations and
marketing activities.
B Who will be affected?
The AIFMD will apply to a non-EU AIFM
marketing and/or managing funds in the EU,
whether the fund is based either in the EU (an
“EU fund”) or outside the EU (a “non-EU fund”).
However, it distinguishes between:
(i) non-EU AIFMs who manage EU funds, or who
intend to market funds (whether EU funds or
non-EU funds) which are managed by them
in the EU; and
(ii) non-EU AIFMs who manage non-EU funds
outside of the EU.
It should be noted that managers who manage
leveraged assets of below €100m (a small hedge
fund) and those who manage unleveraged assets
of below €500m where there are no redemption
rights within five years of initial investment in the
AIFs (for instance, a typical private equity fund)
are exempt from the requirements of the AIFMD
for these purposes. They are however subject
to certain of the provisions of the AIFMD and
cannot benefit from its passporting rights.
Non-EU AIFMs falling within (i) will have to
become authorised as AIFMs by the regulator
in the appropriate “Member State of reference”
and will be subject to virtually full compliance
with the AIFMD, while those falling within (ii) will
only have to comply with certain of the AIFMD’s
provisions and can be marketed under the
current “private placement” requirements.
C How will non-EU AIFMs continue
marketing after 22 July 2013?
As mentioned above, the passport regime will
not come into effect for non-EU AIFMs until 2015
and this is subject to the European Securities and
Markets Authority (ESMA) recommending that
the passport is made available to non-EU AIFMs.
If the passport regime is activated, all non-EU
AIFMs managing or marketing AIFs in the EU will
need to apply for authorisation and comply fully
with the AIFMD.
Until the passport regime comes into effect, if
and when it does, non-EU AIFMs will only be able
to market in the EU under the existing private
placement regimes of Member States. It should
be noted that the private placements regimes of
each country vary.
AIFMD: Non-EU Managers.
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D How does the private placement
regime work?
The private placement regime is subject to a
number of conditions under the AIFMD, which
must be met for a non-EU AIFM to be able
to market its AIFs in the EU, in particular the
following minimum conditions:
(i) the relevant EU Member State must have
a private placement regime which permits
non-EU AIFMs to market AIFs in that
Member State;
(ii) co-operation agreements must be in place
between the regulator of the relevant EU
Member State and the regulator of the
country of domicile of the non-EU AIFM and,
if the AIF is a non-EU AIF, the regulator of the
AIF’s country of domicile also for the purpose
of systemic risk oversight;
(iii) the country of domicile of the non-EU AIFM
and, if the AIF is a non-EU AIF, the AIF’s
country of domicile must not be listed as
non-cooperative for FATF purposes; and
(iv) the non-EU AIFM must comply with certain
requirements of the AIFMD, namely
the disclosure obligations (to investors),
transparency requirements (to regulators)
and the annual reporting obligations of
the AIF, as well as any additional local
requirements of the relevant EU Member
State (please see below for more detailed
information on each of these requirements).
The non-EU AIFM will not be able to market,
or continue to market, in the EU after 22
July 2013 if any of these conditions are not
satisfied. Furthermore, it is important to note
(as mentioned above) that private placement
regimes vary and Member States have the ability
to impose stricter conditions on their private
placement regimes or to ban private placements
altogether at any time.
The private placement regime is expected to
remain in place until at least 2018, at which
time ESMA is expected to report on whether
this regime should stay or be abolished. If it is
abolished, the only marketing route available
would then be the passport system, subject to
ESMA’s recommendation as stated above. If
that is the case, all non-EU AIFMs who wish to
continue marketing their AIFs in the EU will need
to apply for authorisation and comply fully with
the AIFMD.
Disclosures to investors under the private
placement regime
The AIFMD specifies a number of matters which
should be disclosed to an EU investor prior to any
initial investment, but in most cases these usually
form part of the contents of an AIF’s offering
memorandum, such as investment strategy,
policy and restrictions, details of leverage and
re-hypothecation arrangements, valuation, fees
and expenses, prime brokerage arrangements
and side letters.
With regard to leverage, non-EU AIFMs should
be aware that the European Commission has
recently published the draft level 2 delegated
Regulation (the “Level 2 Measures”) which,
amongst other things, provides detail on the
methodology for calculating leverage for AIFMD
purposes. In brief, the AIFMD defines leverage
as any method by which the AIFM increases
exposure of an AIF it manages, whether through
borrowing or leverage, and in order to ensure
uniform compliance when calculating leverage.
The Level 2 Measures provide two methods for
calculation:
(i) the “gross” method; and
(ii) the “commitment” method.
Although additional and optional methods may
be adopted on the basis of technical advice
developed by ESMA, the gross and commitment
methods remain obligatory for all AIFMs.
Generally, the gross method indicates the overall
exposure of the AIF and the commitment method
provides information on hedging and netting, the
intention being to allow regulators and investors
to gain a complete picture of the AIF.
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Other disclosure obligations to investors include
notifying them of any material changes in
relation to the above information and also details
of any preferential treatment provided to an
investor or any special arrangements, such as
side pockets.
Disclosures to regulators under the private
placement regime
The AIFMD requires regular reporting by the
non-EU AIFM to the competent authorities
in each EU Member State where the AIFs are
marketed. The Level 2 Measures set out the
reporting template, which must be delivered to
the relevant authorities within one month (with a
further 15 days for funds of funds) after the end
of the relevant period, which varies according to
the total assets under management of all AIFs
managed by the non-EU AIFM. These reporting
requirements include reporting in relation to the
percentage of the AIF’s assets which are subject
to special arrangements arising from their illiquid
nature and also reporting in relation to the main
categories of assets in which the AIF invests.
For US managers, the reporting requirements
are similar to Form PF, but it will not be possible
merely to lift all the necessary information from
one report into another, as the valuation and
leverage calculations differ under the AIFMD.
The calculation of leverage methodology is as
discussed above. As regards the calculation of
assets, the AIFM has to calculate total AUM by
determining the value of all assets it manages,
without deducting liabilities, and valuing all
financial derivative instruments at the value of an
equivalent position in the underlying assets (so
as to reflect the AIF’’s exposure to those assets).
This calculation must be made at least annually,
using the calculation methodology set out in the
Level 2 Measures, and AIFMs are then required
to monitor AUM on an on-going basis and action
must be taken when thresholds laid down in the
AIFMD are occasionally breached.
Annual reporting disclosures under the
private placement regime
An annual report for each AIF marketed to EU
investors must be made available to investors
by no later than six months following the end
of the financial year and the report is required
to contain, in addition to the balance sheet and
profit and loss, disclosures in relation to the
remuneration and management fees paid by
the non-EU AIFM to its staff, including the total
amount of carried interest payments.
E What action is needed now?
If non-EU AIFMs wish to market, or continue to
market, their AIFs to EU investors after 22 July
2013, then it can be seen from the above that
a certain amount of preparation and review is
required. We would recommend that you read
our Checklist for Non-EU Managers, which can be
found under ‘Publications’ on our website.
To summarise briefly, non-EU AIFMs need to
liaise with counsel to:
• discuss their specific structures and consider
what actions need to be taken;
• determine which EU Member States are
a marketing target and review relevant
private placement regimes, noting stricter
requirements, if any, by a particular Member
State;
• consider the benefits of authorisation and
use of the passport system from 2015
onwards (subject to ESMA advice) as against
the private placement regimes;
• make a checklist of AIFMD disclosure
requirements and update offering
memoranda and all marketing
documentation if required;
• prepare for calculation of leverage in
accordance and
• review existing reporting systems and
procedures and determine whether they
will need updating for AIFMD purposes.
Should you wish to discuss any of the points
raised in the above or the AIFMD passporting
regime in more detail, please contact Claire at
Claire.Cummings@cummingslaw.com
5. 42 Brook Street, London W1K 5DB +44 20 7585 1406 | Neuhofstrasse 3d, CH-6340 Baar +41 41 544 5549
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This document is for general guidance only. It does not constitute advice
February 2013
