The UK Treasury has recently published a new, and near final, version of the implementing Regulations for the Alternative Investment Fund Managers Directive (the “AIFMD”). (We have commented on the consequences of the AIFMD for EU managers and non-EU managers in our 4 January, 11 January, 27 February and 27 March client alerts.) This updated version of the implementing Regulations represents a considerable improvement for managers compared to the initial draft.
In summary, with effect from the implementation date (22 July 2013), European managers of Alternative Investment Funds (“AIFs”) – essentially:
(a) any European manager of a PE, VC, hedge or real estate fund will need to be authorised in its home member state and comply with various requirements regarding the funds that it manages concerning information disclosure and third-party service providers; and
(b) any non-European manager of a PE, VC, hedge or real estate fund will need to comply with various marketing and registration restrictions if it wishes to obtain access to European investors.
This Client Alert discusses the major changes to the AIFMD implementing Regulations.
The AIFMD contains a very important one-year transitional provision that extends until 22 July 2014, the period in which existing managers may continue managing AIFs without having to be authorised under the Directive and without having to comply with the marketing/disclosure requirements.
Significantly, the new version of the Regulations provides that:
- the transitional provision will be available to non-EU managers as well as EU managers. The first draft of the Regulations excluded non-European managers; and
- a manager that benefits from the transitional provision may launch new funds during the transitional period without having to comply with the AIFMD in relation either to existing or those new funds. In other words, the benefit of the transitional provision attaches to the manager and not to any specific fund. Funds in the form of a partnership where the GP is often the manager may wish to consider this point carefully if they want to benefit from the transitional provision for any new fund after July 2013. To benefit from the transitional provision, they may need to ensure a common manager across multiple funds.
It is not, however, all good news. Non-EU managers should note that the test for the transitional provision is that the manager must be both managing and marketing at least one fund immediately prior to 22 July 2013 in order to qualify (merely managing but not marketing as of July will not be sufficient). Given the UK Financial Conduct Authority’s (the “FCA”, the UK regulator) view of marketing (that there must be an offer capable of acceptance), this has real consequences for managers that don’t currently both manage and market an existing fund but wish to establish a new fund after July 2013. It is clear that incorporating a “place holder” fund structure prior to July for launch subsequent to July will not really work.
A further important point is that, since such managers will be wholly exempt from the AIFMD during the transitional period, non-EU managers will not need to concern themselves with the issue of whether the appropriate co-operation agreements are in place between the EU and relevant non-EU regulators at least until 2014.
Other EU states have not yet decided whether they will adopt the same approach to the transitional provisions, although we understand that Germany is currently proposing to do so.
The UK Treasury’s initial approach was to require non-EU managers that don’t meet the transitional requirements to register funds with the FCA and for the FCA to grant approval before any marketing may take place in the UK. This has been replaced with a much simpler notification procedure. As soon as a non-EU manager has notified the FCA that it wishes to market a fund into the UK and has confirmed that it will comply with the requirements of the Directive, then it may commence full marketing. Marketing material, such as a PPM, will no longer be subject to any review by the FCA.
This is very good news for non-EU managers that wish to market into the UK. We do not yet know, however, how many other EU countries will also adopt this procedure.
Sub-Threshold Funds – European Managers
In broad terms, member states are given the option of maintaining a registration procedure rather than full authorisation for managers of sub-threshold funds. In very brief terms, a manager will manage sub-threshold funds if the portfolio of funds that it manages is lower than €100 million (leveraged1) or €500 million (unleveraged) in aggregate on a global basis.
The UK Treasury had originally proposed implementing this measure in relation only to internally managed closed ended investment companies, but the new draft extends it to qualifying EEA venture capital funds under the relevant new EU Regulation and to asset managers of certain property funds that invest a “majority” of their assets in “land” directly or through SPV corporate holding vehicles but which hold no other “investments” other than insurance for those land holdings. (This latter restriction could cause difficulty for managers whose funds have cash holdings in the form of debentures or other investments or who hold “land” through partnerships that may be collective investment schemes.)
The implementing Regulations should be laid before Parliament shortly and will be effective as of 22 July 2013. The FCA is expected to publish its final rules shortly including the final version of its guidance on their application in the UK. We are also awaiting similar measures in other member states, particularly in relation to the transitional provisions.
 In very general terms, a fund that borrows money or securities or enters into derivative positions to increase its exposure beyond investors’ contributions.