The 2010 EU Alternative Investment Fund Management Directive requires all AIFs in the EU to be managed by an approved Alternative Investment Fund Manager (AIFM). Those in the UK must be authorised and regulated by the Financial Conduct Authority. Non compliance is a criminal offence.
The AIFMD sets high standards of business conduct for the AIFM and prescribes the requirement for a depositary, compliance policies and procedures, minimum standards for portfolio and risk management, capital requirements, insurance requirements, remuneration policies, disclosure and systemic reporting requirements of both the manager and the fund.
The introduction of AIFMD has significantly changed the way in which alternative funds are managed, both inside and outside the EU. If either the fund manager or the fund is domiciled in the EU, then AIFMD applies. And, a non-EU manager of a non-EU fund that has an EU investor will also fall under the directive.
AIFMD rules have abolished the potential for a soft touch approach to fund management, forcing investors and advisors to appoint qualified and experienced managers within the fund management entity.
Fund managers should embrace AIFMD, treating it as a quality benchmark. We believe it will not be long before investors expect their manager to be an approved AIFM irrespective of the structuring of a fund.
Marketing in the EU
The AIFMD restricts the marketing of investment funds to European investors. Only authorised EU managers with EU funds will benefit from a “passport” enabling them to market investment funds to professional investors in the EU.
Non-EU managers are expected to be able to access the passport regime from July 2015 by seeking full approval as an AIFM. Until then they have to follow complex individual country private placement regimes.