The Directive requires AIFM to observe detailed operating requirements. The Directive sets out general operational principles. Specific operating principles require AIFM to manage conflicts of interest, risk, liquidity, and certain investments which are associated with particular risks.

Minimum quality standards, fair treatment of investors

The Directive's operating principles for AIFM are centered on general principles for the conduct of business which apply to any AIFM which provides service within the EU. In order to assure a minimum standard of management, and to ensure fair treatment of investors, pursuant to Article 12(1) the AIFM must:

  • act honestly, with due skill, care and diligence and fairly in conducting its activities;
  • act in the best interest of the AIF or the investors of the AIF it manages and the integrity of the market;
  • hold, and employ effectively, resources and procedures sufficient for the proper performance of its business activities;
  • take all reasonable steps to avoid conflicts of interests and, when they cannot be avoided, to identify, prevent, manage and monitor (and where applicable, disclose), those conflicts of interest in order to prevent them from adversely affecting the interests of the AIF and its investors and to ensure that the AIF it manages are fairly treated, further information on conflicts of interest is set out here;
  • comply with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of the AIF or the investors of the AIF it manages and the integrity of the market; and
  • treat all AIF investors fairly.

As can be seen, these are similar to the general principles that MiFID firms are required to comply with.

Preferential treatment of investors – side letters and MFNs

Preferential treatment of an investor, though not prohibited, is permitted only where the other investors are informed of the preferential treatment (e.g. by disclosure in the AIF's rules or instruments of incorporation). This could have an impact on the ability of AIF and AIFM to offer side letters and most favoured nations provisions (MFNs).


Pursuant to Article 13(1), an AIFM must have remuneration policies and procedures in place in relation to those staff whose professional activities have a material impact on the risk profiles of AIF they manage. Such policies and procedures must be consistent with, and promote, sound and effective risk management and must not encourage risk-taking which is inconsistent with the risk profiles and constitutional documentation of the AIF it manages.

Staff, for these purposes, includes senior management, risk takers, holders of control functions and any employee receiving total remuneration that takes them into the same remuneration bracket as senior management.

Annex II of the Directive sets out principles that AIFM must follow in establishing these remuneration policies.

Supervision of remuneration policies

Whilst ESMA is generally responsible for the supervision of, and consulting on, matters relating to the Directive, the Committee of European Banking Supervisors (CEBS) is also responsible for implementing guidance relating to remuneration policies alongside ESMA. This should hopefully assist in ensuring that there is consistent application of these rules on remuneration with those that are being incorporated into to the Capital Requirements Directive.