AIFM Directive - Marketing of Alternative Investment Funds

Date 7 jul. 2011

 

Introduction

Presently, hedge funds, private equity funds, commodity funds, real estate funds etc. are regulated in each of the 27 EU member states under domestic regulation, such regulation being a combination of national financial and company law regulations and general provisions.


Following the financial crisis, the EU-Commission recognized a need to regulate and harmonize the sector on a cross-border basis due to the risks, which the sector poses for market stability, investors, creditors, trading counterparties etc.


The efforts have resulted in the adoption of the directive for Alternative Investment Fund Managers (“AIFM”) which lay down rules for authorization, ongoing operation, marketing, and transparency of AIFMs which manage and/or market Alternative Investment Funds (“AIF”) in the EU. The AIFM-directive (2011/61/EU) was published in the Official Journal on 1 July 2011 and will become effective on 21 July 2011. The final transposition date of the AIFM directive is 22 July 2013.


The AIFM-directive regulates the fund managers, rather than the funds that they manage and market, as it is the AIFM that is responsible for all key decisions in relation to the AIF. In the AIFM-directive, an AIF is defined as any collective investment undertaking, including investment compartments thereof, which raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors. The Directive will affect a significant number of AIFMs that manage or market AIFs within the EU.


An AIFM will be subject to authorization by its home EU member state/state of reference (the relevant FSA), whereas the AIFs will not be subject to such requirements.


Once an AIFM has been authorized, as a main rule the authorization is valid for management of AIFs in all EU member states and - subject to fulfilment of separate conditions - marketing of units or shares in such AIFs in the EU.

 

Commencement and implementation of marketing provisions

 

Until summer 2013 - national private placement regimes 

The current national private placement regimes continue to apply to EU and non-EU AFIMs marketing EU and non-EU AIFs within the EU until the final transposition date of the AIFM directive (summer 2013).


An “EU AIF” means an AIF authorised or registered in a particular EU member state under domestic law or, if neither is the case, which has its registered office and/or head office in a particular EU member state.


2013-2015 - dual regimes 

From the final transposition date of the AIFM directive, there are basically two methods which allow the marketing of AIFs in the EU by AIFMs.


The first method is a marketing “passport” to allow AIFs to be marketed to professional investors across the EU. A single market framework is introduced that will allow AIFMs to "passport" their services in different EU member states on the basis of a single authorisation. Once an AIFM is authorised in one member state and complies with the rules of the AIFM directive, the AIFM will be entitled upon notification to manage or market AIFs to professional investors throughout the EU.


The second method is based on the national private placement rules. This method allows AIFs to be marketed in a specific EU member state if the EU member state’s securities regulator allows it (national private placement regimes) subject to the specific conditions therefore set forth in the AIFM directive.


From the summer of 2013, the following applies for the marketing of AIFs in the EU by AIFMs:

  • EU AIFMs marketing EU AIFs in another EU member state must obtain a passport[1] and can no longer use the national private placement regimes.
  • EU AIFM marketing a non-EU AIF in an EU member state must use the national private placement regimes.
  • A non-EU AIFM marketing an EU AIF in an EU member state must use the national private placement regimes.
  • A non-EU AIFM marketing a non-EU AIF in an EU member state must use the national private placement regimes.
2015-2018 - dual (concurrent) regimes 

EU and non-EU AIFMs marketing EU and non-EU AIFs within the EU will become eligible to obtain a passport from sometime late in 2015.[2] The national private placement regimes are still available, except for EU AIFMs marketing EU AIFs in the EU.


From 2018 - EU regime applies 

The dual marketing regimes are expected to operate from the final transposition date and until sometime in 2018. The option for national private placement regime is expected to end and only the EU “passport” regime remains.

 

What is marketing of an AIF in the EU?

“Marketing” is defined in the AIFM-directive as


“any direct or indirect offering or placement at the initiative of the AIFM or on behalf of the AIFM of the units or shares in an Alternative Investment Fund it manages to or with investors domiciled in the EU”.


An AIFM’s use of a marketing or placement agent to conduct marketing activity in the EU will most likely be considered “marketing” under the AIFM directive.


However, “passive” marketing or “reverse solicitation” (i.e. not at the direct or indirect initiative of the AIFM) is outside the scope of AIFM directive.

 

Marketing to which investors?

 

Professional investors
Under the AIFM directive, an authorised AIFM may market shares or units of an AIF which it manages to professional investors in the EU as defined in the MIFID directive.


Retail investors 

With respect to marketing to retail investors, regulation of such marketing is entrusted to each of the EU member states and thus in substance not regulated by the AIFM directive.


Under article 43 of the AIFM directive, member states may allow an AIFM to market to retail investors on their territory shares or units of an AIF it manages in accordance with the AIFM directive, irrespective of whether the AIF in question is marketed on a domestic or cross-border basis or whether it is an EU or non-EU AIF.


Thus, member states may impose stricter requirements on the AIFM or the AIF marketed on their territory than set forth in the AIFM directive. However, they may not impose stricter requirements on EU AIFs established in another member state and marketed on a cross-border basis than on AIFs marketed domestically (no discrimination).

 

Information to be provided for intended marketing of AIFs

Annex III of the AIFM directive contains the information to be provided by the AIFM to the relevant authorities in case of intended marketing of an AIF in the home member state of the EU AIFM (or the member state of reference if non-EU AIFM).


Annex IV of the AIFM directive contains the information to be provided by the AIFM to the relevant authorities in case of intended marketing of an AIF in another member state than the home member state of the EU AIFM (or than the member state of reference if non-EU AIFM).

 

Marketing scenarios - application of marketing provisions

 

EU AIFM marketing an EU AIF in the EU AIFM's home member state (from summer 2013)
Under the AIFM directive article 31, an authorised EU AIFM may market any EU AIF that it manages to professional investors in the EU AIFM’s home member state.


Under the AIFM directive, such marketing of each EU AIF is subject to prior notification (including documentation/information) to the competent authorities (FSA) of the EU AIFM’s home member state.


EU AIFM marketing an EU AIF in another EU member state (from summer 2013) 

Under the AIFM directive article 32, an authorised EU AIFM may market an EU AIF that it manages to professional investors in another EU member state than the home member state of the EU AIFM. Such marketing of each EU AIF is subject to prior notification (including documentation/information, attestation and transmission) to the competent authorities (FSA) of the EU AIFM’s home member state (full compliance with the AIFM directive).[3]

 

EU AIFM marketing a non-EU AIF in the EU 

The AIFM directive implements a dual regime for marketing non-EU AIFs to professional investors in the EU.


An EU AIFM may market its non-EU AIFs either

  1. into all EU member states under an EU “passport” regime, or
  2. into an EU member state if the EU member state’s securities regulator allows it (national private placement regime) in compliance with the conditions set forth in the AIFM directive.

EU “passport” regime (from 2015) 

Under the AIFM directive article 35, an authorised EU AIFM may market shares or units of a non-EU AIF that it manages to professional investors in the EU with a “passport”. Such marketing is subject to the following conditions:

  • Appropriate cooperation arrangements must be in place between the AIFM’s home member state securities regulator and the equivalent regulator in the non-EU AIF third country,
  • The third country of the non-EU AIF must not be listed as a Non-Cooperative Country and Territory by the Financial Action Task Force on anti-money laundering and terrorist financing, and
  • Compliant OECD tax agreements must be entered into between the third country of the non-EU AIF, the AIFM’s home member state, and each EU member state where the non-EU AIF is to be marketed.

Further, the marketing of each non-EU AIF is subject to prior notification (including documentation/information, attestation and transmission) to the competent authorities (FSA) of the EU AIFM’s home member state,

 

National private placement regime (2013-2018) 

Under the AIFM directive article 36, an authorised EU AIFM may market shares or units of a non-EU AIF that it manages to professional investors in an EU member state if such EU member state’s securities regulator allows the marketing on its territory. Such marketing is subject to the following conditions:

  • Appropriate cooperation arrangements must be in place between the AIFM’s home member state securities regulator and the equivalent regulator in the non-EU AIF country, and
  • The country of the non-EU AIF must not be listed as a Non-Cooperative Country and Territory by the Financial Action Task Force on anti-money laundering and terrorist financing.

The EU AIFM must comply in full with the provisions of the AIFM directive, except for some of the requirements related to depository in the AIFM directive article 21. Each member state may impose stricter rules on the EU AIFM in respect of the marketing of units or shares of the non-EU AIF to investors in their territory under the national private placement regime.

 

Non-EU AIFM marketing an EU AIF in the EU 

The AIFM directive implements a dual regime for marketing EU AIFs to professional investors in the EU by non-EU AIFMs.


A non-EU AIFM may market its EU AIFs either

  1. into all EU member states under an EU “passport” regime, or
  2. into an EU member state if the EU member state’s securities regulator allows it (national private placement regime).

EU “passport” regime (from 2015) 

Under the AIFM directive article 39, a duly authorised non-EU AIFM may market shares or units of an EU AIF that it manages to professional investors in the EU with a “passport”.


The marketing of each EU AIF is subject to prior notification (including documentation/information, attestation and transmission) to the competent authorities (FSA) of the non-EU AIFM’s member state of reference. The member state of reference is determined pursuant to the AIFM directive, article 37(4).


Under the AIFM directive article 37(7), the authorization of a non-EU AIFM is subject to the following conditions relevant to marketing:

  • Legal representative must be established in the non-EU AIFM member state of reference as the relevant contact person to perform the compliance function for the EU management and marketing activities (together with the non-EU AIFM),
  • Appropriate cooperation arrangements must be in place between the non-EU AIFM’s member state of reference securities regulator, the securities regulator in the EU AIF member state, and the equivalent regulator in the country of the non-EU AIFM,
  • The third country of the non-EU AIFM must not be listed as a Non-Cooperative Country and Territory by the Financial Action Task Force on anti-money laundering and terrorist financing,
  • Compliant OECD tax agreements must be entered into between the non-EU AIFM’s member state of reference and the country where the non-EU AIFM is established, and
  • There must be no domestic preventions in the third country of the non-EU AIFM for an effective supervision by the relevant authorities.

National private placement regime (2013-2018) 

Under the AIFM directive article 42, a non-EU AIFM may market shares or units of an EU AIF that it manages to professional investors in an EU member state if such EU member state’s securities regulator allows the marketing on its territory. Such marketing is subject to the following conditions:

  • Compliance with articles 22 (annual report), 23 (disclosure to investors), and 24 (reporting obligations to competent authorities in the member states in which the EU AIF is marketed) for each of the non-EU AIFs, and if applicable, obligations for AIFMs managing AIFs which acquire control of non-listed companies or issuers, cf. articles 26-30 (notification of acquisitions of control and major shareholdings, disclosure of acquisition of control, contents of annual report and asset stripping requirements),
  • Appropriate cooperation arrangements must be in place between the securities regulator of the member state of the EU AIF, the securities regulators of the member states in which the EU AIF is marketed, and the equivalent regulator in the country of the non-EU AIFM, and
  •  The country of the non-EU AIFM must not be listed as a Non-Cooperative Country and Territory by the Financial Action Task Force on anti-money laundering and terrorist financing.

Each member state may impose stricter rules on the non-EU AIFM in respect of the marketing of units or shares of the EU AIF to investors in their territory under the national private placement regime.

 

Non-EU AIFM marketing a non-EU AIF in the EU 

The AIFM directive implements a dual regime for marketing non-EU AIFs to professional investors in the EU by non-EU AIFMs.


A non-EU AIFM may market its non-EU AIFs either

  1. into all EU member states under an EU “passport” regime, or
  2. into an EU member state if the EU member state’s securities regulator allows it (national private placement regime).

EU “passport” regime (from 2015) 

Under the AIFM directive article 40, a duly authorised non-EU AIFM may market shares or units of a non-EU AIF that it manages to professional investors in the EU with a “passport”. The marketing of each non-EU AIF is subject to the following conditions:

  • Prior notification (including documentation/information, attestation and transmission) to the competent authorities (FSA) of the non-EU AIFM’s member state of reference (determined under AIFM directive, article 37(4),
  • Appropriate cooperation arrangements must be in place between the non-EU AIFM’s member state of reference securities regulator and the equivalent regulator in the non-EU AIF country,
  • The country of the non-EU AIF must not be listed as a Non-Cooperative Country and Territory by the Financial Action Task Force on anti-money laundering and terrorist financing, and
  • Compliant OECD tax agreements must be entered into between the non EU AIFM’s member state of reference, the country of the non-EU AIF, and each member state where the non-EU AIF is to be marketed.

Under the AIFM directive article 37(7), the authorization of a non-EU AIFM is subject to the following conditions relevant to marketing:

  • Legal representative must be established in the non-EU AIFM member state of reference as the relevant contact person to perform the compliance function for the EU management and marketing activities (together with the non-EU AIFM),
  • Appropriate cooperation arrangements must be in place between the non-EU AIFM’s member state of reference securities regulator, the securities regulator in the EU member state where the non-EU AIF is marketed, and the equivalent regulator in the country of the non-EU AIFM,
  • The country of the non-EU AIFM must not be listed as a Non-Cooperative Country and Territory by the Financial Action Task Force on anti-money laundering and terrorist financing,
  • Compliant OECD tax agreements must be entered into between the non-EU AIFM’s member state of reference and the country where the non-EU AIFM is established, and
  • There must be no domestic preventions in the country of the non-EU AIFM for an effective supervision by the relevant authorities.

National private placement regime (2013-2018) 

Under the AIFM directive article 42, a non-EU AIFM may market shares or units of a non-EU AIF that it manages to professional investors in an EU member state if such EU member state’s securities regulator allows the marketing on its territory. Such marketing is subject to the following conditions:

  • Compliance with articles 22 (annual report), 23 (disclosure to investors), and 24 (reporting obligations to competent authorities in the member states in which the non-EU AIF is marketed) for each of the non-EU AIFs, and if applicable, obligations for AIFMs managing AIFs which acquire control of non-listed companies or issuers, cf. articles 26-30 (notification of acquisitions of control and major shareholdings, disclosure of acquisition of control, contents of annual report and asset stripping requirements),
  •  Appropriate cooperation arrangements must be in place between the securities regulators of the member states in which the non-EU AIF is marketed, the equivalent regulator in the country of the non-EU AIF, and the equivalent regulator in the country of the non-EU AIFM, and
  • The country of the non-EU AIFM as well as the country of the non-EU AIF must not be listed as a Non-Cooperative Country and Territory by the Financial Action Task Force on anti-money laundering and terrorist financing.

Each member state may impose stricter rules on the non-EU AIFM in respect of the marketing of units or shares of the non-EU AIF to investors in their territory under the national private placement regime.



If you have any questions or require any additional information on the AIFM directive, please contact attorney-at-law Christoffer Galbo (cga@mwblaw.dk) or attorney-at-law Henrik Syskind Pedersen (hsp@mwblaw.dk).


The above does not constitute legal counseling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of the above.



[1] The wording of article 34 of the AIFM directive does not refer to the EU passport regime with respect to EU AIFMs marketing EU AIFs but the terminology is used here for easier understanding and systemization. The EU passport regime is only referred to for an EU AIFM marketing a non-EU AIF, a non-EU AIFM marketing an EU AIF, and a non-EU AIFM marketing a non-EU AIF. The distinction between EU AIFMs marketing EU AIFs and the other scenarios with respect to the EU passport regime is made in paragraph 6 of this article where each marketing scenario is examined in detail. EU AIFM marketing a non-EU AIF, a non-EU AIFM marketing an EU AIF, and a non-EU AIFM marketing a non-EU AIF within the EU will become eligible to obtain a passport from sometime late in 2015.

[2] ESMA (European Securities and Markets Authority) must recommend that the availability shall be extended to non-EU-AIFMs after secondary implementing legislation has been passed by the EU Commission.

[3] It corresponds to the ”passport” regime, however, is not referred to in this way and no cooperation arrangements, OECD tax agreements are required.