European Regulations Taking Shape for Alternative Investment Funds

Europe’s Alternative Investment Fund Managers Directive (AIFMD), scheduled to be implemented by each member state no later than July 2013, will radically change the way funds are regulated in Europe. From law firm Harneys Westwood & Riegels:

“ [The Directive] will overhaul the pan-European regulatory regime applicable to the managers of hedge funds, real estate funds, private equity and other collective investment schemes containing, what is loosely being described as, ‘alternative investments’. On its face, the AIFMD restricts its scope to the regulation of investment managers rather than underlying funds being managed. However it is clear these regulations will have a knock on effect in shaping and influencing the forms of the investment funds under management.” (Alternative Investment Fund Managers Directive: EU and Offshore Perspectives)

For your convenience, a roundup of recent legal updates on the topic:

ESMA Consults on Remuneration Guidelines for Alternative Investment Fund Managers (Skadden, Arps, Slate, Meagher & Flom LLP):

“Under the AIFMD, all AIFMs (whether they are EU or non-EU) will be required to produce an annual report in respect of each fund they manage or market within the EU. The annual report must contain, inter alia: ‘the total amount of remuneration, split into fixed and variable remuneration, paid by the AIFM to its staff, and the number of beneficiaries, and, where relevant, carried interest paid by the AIF’; and ‘the aggregate amount of remuneration broken down by senior management and members of staff of the AIFM whose actions have a material impact on the risk profile of the AIF.’” Read on>>

Authorization for US Managers under the AIFMD (K&L Gates LLP):

“There are three primary reasons why US money managers (US Managers) who manage non-EU alternative funds may want to prepare for authorization under and become compliant with the AIFMD. First, it is likely that national private placements will come to an end quite soon. That is, it is increasingly likely that the sale of Cayman funds (for example) to Europe will soon be precluded on a national private placement basis.” Read on>>

HM Treasury Discussion Paper on Policy Options for Implementing AIFMD (Katten Muchin Rosenman LLP):

“… HM Treasury published a discussion paper on high level policy options for implementing the EU Alternative Investment Fund Managers Directive (2011/61/EU) (AIFMD)… The areas covered by the policy paper are: Whether the UK should continue to apply its current private placement marketing regime to alternative investment funds (AIFs). (Currently the UK government is not minded to impose additional requirements on third country managers and third country funds.).” Read on>>

Hedgeweek Guide to setting up Alternative Investment Funds – June 2012: Cayman Islands (Harney Westwood & Riegels):

“The Cayman Islands is the leading jurisdiction for the formation of alternative investment funds, having approximately 9,990 registered, administered and licensed funds under the Mutual Funds Law (as amended) of the Cayman Islands (the ‘MFL’) as at 31 March 2012. The MFL requires all investment funds falling within its definition of a ‘mutual fund’ to be registered, administered or licensed with CIMA, unless such mutual fund is an ‘excluded fund’, being a mutual fund that is not a master fund domiciled in the Cayman Islands and having 15 or less investors, the majority in number whom can appoint and remove the fund directors, general partner(s) and trustee(s).” Read on>>

Hedgeweek Guide to setting up Alternative Investment Funds: The British Virgin Islands (Harney Westwood & Riegels):

“The British Virgin Islands is a leading jurisdiction for the formation of alternative investment funds, having approximately 2,525 funds registered or recognised under the Securities and Investment Business Act 2010 (SIBA). Funds recognised or registered under SIBA are regulated by the Financial Services Commission (the Commission), the financial regulator in the British Virgin Islands. SIBA requires all investment funds falling within its definition of ‘fund’ to be recognised or registered with the Commission.” Read on>>

“Amendments to the Luxembourg Law on Specialised Investment Funds” in Financial Services Quarterly Report – Second Quarter 2012 (Dechert LLP):

“The amendments to the SIF Law that are contained in the Law represent the first step in the implementation of the Alternative Investment Fund Managers Directive (the “Directive”) in Luxembourg… The Law includes new provisions with respect to portfolio management, the delegation of certain functions to third parties, risk management and conflicts of interest.” Read on>>

Financial Regulatory Update – May 2012 (White & Case LLP):

“…ESMA published a discussion document on various provisions under the AIFMD including the definitions of alternative investment fund managers, alternative investment funds, treatment of UCITS management companies and the treatment of MIFID Investment Firms and Credit Institutions under the Directive.” Read on>>

“Self-Managed Alternative Investment Funds: A New AIFMD-Compliant Structure?” in Financial Services Quarterly Report – First Quarter 2012 (Dechert LLP):

“Following adoption of the AIFMD, there has been significant discussion among industry participants as to whether it might be possible to comply with the provisions of the AIFMD by structuring the AIF as a self-managed investment company, in the same way that UCITS self-managed investment companies are managed.” Read on>>

See also:

Find more on international finance law at JD Supra>>