A Guide to the AIFM Directive - Putting Fund Managers on the Right Path

Author:Mr Stephen Carty
Profession:Eversheds O'Donnell Sweeney


The European Union has finally succeeded in introducing a directive to establish a harmonised pan-EU framework for the regulation and supervision of the activities of alternative investment fund managers ("AIFM"). This will be implemented within the EU from January 2013.

The Alternative Investment Fund Managers Directive ("AIFM Directive") will automatically apply to AIFM located in the EU. Its scope will also cover AIFM located outside the EU who manage EU based alternative investment funds ("AIF") and also, to a certain extent, non-EU AIFM managing non-EU AIF that are marketed in the EU.

The initial draft of the AIFM Directive was produced in April 2009 as a reaction to the perceived role of hedge funds in the recent financial crisis. After a prolonged period of drafting and much political wrangling the AIFM Directive has been formally approved.

This paper presents an overview of the key provisions of the AIFM Directive and an analysis of how they will impact the operations of fund managers. While it does not propose to be a comprehensive study, it aims to address some of the most immediate questions that will be posed by fund managers now the AIFM Directive is finally a reality.

Some fund manager frequently asked questions:

Does the AIFM Directive apply to our business? To what extent will the AIFM Directive affect our business? What does authorisation require? When does the AIFM Directive come into effect? What will we need to do in advance of the AIFM Directive's introduction? DOES THE AIFM DIRECTIVE APPLY TO OUR BUSINESS?

The first question posed by fund managers will be whether the AIFM Directive impacts their business.

Is your firm located within the EU?

If the answer is no, the AIFM Directive will only apply if you manage EU funds or market non-EU funds within the EU and only to a limited extent.

Does your firm provide portfolio management services or risk management services to investment funds?

The AIFM Directive will not apply if the answer is no.

Is your firm engaged as the primary/ principle entity responsible for portfolio management/risk management services for one or more investment funds?

If the answer is no and if your firm acts as a delegate to a primary entity and that primary entity is ultimately responsible for the fund's portfolio management (and marketing within the EU) the AIFM Directive will not apply to your firm and such primary entity will be the fund's AIFM and subject to the AIFM Directive.

Is your firm's activity restricted to managing UCITS funds?

The AIFM Directive will not apply if the answer is yes.

Does your firm manage fund assets below €100 million in total?

If yes, the AIFM Directive will apply to your firm to a very limited extent only – your firm will be required to register under the AIFM Directive and provide certain confirmations to your home Member State competent authority.

Does your firm manage fund assets restricted to less than €500 million in unleveraged, closed-end funds?

If yes, the AIFM Directive will apply to a very limited extent only – requiring registration.

If your firm manages AIF, the AIFM Directive will apply to your firm and authorisation will be required, unless the application of the AIFM Directive is limited or excluded as described above.


Some of the key words/phrases that determine the scope of the AIFM Directive are summarised below.


AIFM Directive definition


alternative investment fund/ AIF

any collective investment undertaking...whose object is the collective investment in assets...which raises capital from a number of investors, with a view to investing it in accordance with a defined investment policy for the benefit of those investors

UCITS are exempt. Very broad definition captures a wide range of investment vehicles beyond what would generally be considered to come within the scope of alternative investment funds – for example, it covers private equity and real estate funds. Applies, depending on the context to both EU and non-EU domiciled AIF. An EU fund that invests more than 85% in a single non-EU fund will be categorised as a feeder and treated for the purposes of the marketing provisions of the AIFM Directive as equivalent to a non-EU fund. alternative investment fund manager /AIFM

any legal person whose regular business is managing one or more AIF

Exemption for fund managers managing less than €100 million in assets.* Exemption for fund managers managing less than €500 in funds that do not use leverage and have a minimum five year lock-in.* * Specific (limited scope) registration requirements apply to such managers.

managing an AIF

providing at least portfolio management or risk management services to one or more AIF

Each AIF (or sub-fund thereof) shall have a single AIFM responsible for ensuring compliance with the requirements of the AIFM Directive.


any direct or indirect offering or placement at the initiative of the AIFM or on behalf of the AIFM of units or shares in an AIF it manages to or with investors domiciled in the [European] Union

Scope relates to marketing to professional investors consistent with standards applied by MiFID. Retail offering can be Member State specific.


Key elements on the level of application of the AIFM Directive will be:

the location of the AIFM the location of the AIF whether marketing activity is carried out within the EU in respect of the AIF



AIFM Directive implications


EU AIFM managing EU AIF (Articles 31-33)

Full AIFM Directive authorisation required by AIFM AIF can be marketed to professional investors throughout EU 2

EU AIFM managing non-EU AIF which are not marketed within the EU (Article 34)

AIFM Directive will apply to the AIFM with the exception of Articles 21 and 22 relating to appointment of a custodian and production of an annual report by each AIF Co-operation arrangements must be in place (between AIFM's home Member State competent authority and supervisory authority in third country where the AIF is domiciled) to ensure efficient exchange of information to enable the AIFM's...

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