The European AIFM Directive – New Distribution Opportunities for Hedge Funds
Mark Browne, Partner
Mason Hayes & Curran
The European Parliament adopted the Alternative Investment Fund Managers Directive (the 'Directive') on 11 November 2010. The Directive contains new rules on the marketing of alternative investment funds in the EU by both European and non-European managers. This paper considers the impact of the provisions of the Directive, the opportunities afforded by this new European 'passport' for alternative funds and sets out the timeline for implementation of the new framework.
The Directive was first introduced in response to calls for greater regulation of Alternative Investment Fund Managers (each an AIFM). An AIFM is defined to include any legal or natural person whose regular business is to manage one or more alternative investment funds (each an AIF), such as hedge funds or private equity funds. An AIF is defined, in summary, as a collective investment undertaking (other than a UCITS fund) that raises capital from a number of investors and invests in accordance with a defined investment policy for the benefit of those investors.
Much uncertainty surrounded the Directive as it evolved considerably over the past 18 months prior to its adoption. However, now that consensus has been reached, the alternative investment fund community can prepare for its implementation in 2013 in earnest.
The Directive will apply to all EU AIFMs, which manage one or more AIFs, irrespective of where the AIFs are domiciled. The Directive will also apply to all non-EU AIFMs, which manage one or more AIFs domiciled in the EU or market one or more AIFs in the EU. An AIF that is self-managed (ie, does not appoint a third-party manager) will itself be considered as the AIFM. The Directive has different effects depending on whether the AIF or the AIFM is established within or outside the EU. The broad scope of the Directive is designed to ensure a level playing field, and according to the European Commission, to help minimise the risks of regulatory arbitrage.