Vedder Thinking | Articles Imminent Introduction of AIFMD
The EU's Alternative Investment Fund Managers Directive (AIFMD) imposes significant changes on the management and marketing of alternative investment funds (AIFs), including private equity funds, hedge funds and other private funds. It also affects the marketing of private funds managed by non-European investment advisers to EU investors. After 21 July 2014 U.S. private fund managers marketing any AIFs to EU investors must comply with AIFMD.
AIFMD applies to the following:
- An EU-based fund manager, that manages or markets an AIF based in the EU
- An EU-based fund manager, that manages or markets a non-EU-based AIF
- A non-EU-based fund manager, that manages an EU-based AIF which has been marketed in the EU
- A non-EU-based fund manager, that markets any AIF based in the EU
AIFMD does not apply to undertakings for collective investment in transferable securities (UCITS) established in the EU under the UCITS Directive. Managers of UCITS funds must be regulated as such in a member state of the EU.
Relevance to U.S. Private Fund Managers
Since 22 July 2013, any U.S. private fund manager marketing new AIFs to EU investors has had to comply with AIFMD. This deadline is generally postponed until 21 July 2014 in the case of existing AIFs that already have EU investors. Thereafter, U.S. private fund managers marketing any AIFs to EU investors must comply with AIFMD.
Requirements of AIFMD
Currently, a U.S. private fund manager can market AIFs under the local EU private placing rules. AIFMD introduces a "passport" regime amongst AIFs in different EU member states. Whether this will be extended to U.S. private fund managers is unclear at this stage and clarity is unlikely until 2015. For this reason many U.S. private fund managers, actively marketing AIFs to EU investors, are considering establishing a subsidiary in the EU.
A new regime of cooperation, examination and enforcement among securities regulators must be established. In the case of most U.S. private fund managers, such a regime will likely be between the regulator in the State of Delaware and the relevant EU member state regulator.
U.S. private fund managers will have to (i) comply with strict disclosure and transparency requirements on the content of marketing materials, (ii) regularly report to the regulators in the EU member states where marketing is taking place and (iii) prepare an annual report to investors and regulators (including details of the remuneration paid to the fund manager and its employees). Private equity funds are subject to certain additional reporting requirements and limitations on asset-stripping.
Other Relevant Legislation
Fund managers who are (or must become) authorized and regulated in the EU are subject to a substantial body of other rules and regulations affecting their relationships with clients, team remuneration, risk and capital management and day-to-day activities.
How Vedder Price Can Help
The July 2014 deadline is approaching quickly and firms that are not affected directly by AIFMD should nonetheless plan ahead for changes to marketing rules that are in process and likely to become effective in 2015.
The Vedder Price Corporate team in London has significant experience in acting for fund managers and investors in AIFs and UCITS funds. Our work has included the formation of funds and advice to managers on the management of funds across many jurisdictions, investor types, asset classes and product types, and in respect of open- and closed-ended funds, UCITS, and publicly listed and private funds. We have also advised on the formation and retention/engagement of fund managers and advisers, administrators, custodians and other service providers to those funds. We have represented funds, their managers and advisers on complex and hybrid structures, including crossborder structuring, employee/PM remuneration and interest entitlements, side pockets, gates, illiquid and long-term assets, side letters and parallel investment structures. If you have questions about this bulletin, please contact Richard L. Thomas at +44 (0)20 3667 2930, Sam Tyfield at +44 (0)20 3667 2940 or the Vedder Price attorney with whom you work.