The Directive1 is the corner piece of an extensive legislative initiative by the European Commission seeking to regulate AIFM and the promotion of AIF within the EU2. Its aim is to advance the stability and transparency of investment vehicles.
New obligations for AIFM
The Directive provides for substantial new legal obligations with regard to the management and marketing of shares or units of AIF. Prior to the Directive, the EU lacked a coordinated regulatory framework for collective investment undertakings qualifying as AIF, including hedge funds, certain private equity funds, real estate funds, securities funds, and commodities funds.
Coordinated regulatory framework
The Directive introduces a coordinated regulatory framework, applicable across the EU to fund managers of any AIF that are not UCITS within the meaning of the UCITS IV-Directive3. The Directive further seeks to regulate AIFM established outside of the EU, along with AIFM of AIF established outside of the EU to the extent that they wish to market AIF within the EU. While focusing on regulatory managers, the Directive will also have substantial impacts on the funds themselves.
Key areas to be regulated by the Directive
The Directive will encompass, in summary, the following obligations and requirements:
- registration and authorisation requirements for AIFM;
- special authorisation requirements for AIFM or AIF based outside the EU;
- special authorisation requirements for marketing services;
- restrictions on marketing to retail investors;
- supervision by the competent authorities of the Member States;
- developing of standards and guidelines by ESMA in order to ensure consistent harmonization;
- minimum capital requirements;
- remuneration policies;
- obligations regarding conflicts of interest;
- risk management obligations;
- liquidity management requirements;
- valuation and auditing requirements;
- requirements with respect to delegation of management functions;
- mandatory depositary;
- transparency requirements, including reporting requirements, disclosure and information obligations vis-à-vis investors and state authorities;
- additional obligations for leveraged investments; and
- additional obligations for investments in controlling interests in companies.
Footnotes: 1. Directive 2011/61/EC of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010. See here for the text of the Directive.
2. As at the date of this note, the EU consisted of Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom. It is important to note that key "offshore" jurisdictions such as the Jersey and Guernsey, as well as the Isle of Man, are not within the EU.
3. Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009.