The Transparency Provisions Of AIFMD

Author:Mr Andrew Bates, Brian Kelliher, Donnacha O'Conner, Brian Higgins, Jennifer Fox, Derbhil O'Riordan and Benedicte O'Connor
Profession:Dillon Eustace

Introduction Directive 2011/ 61/EU on Alternative Investment Fund Managers (the "Directive"), which was agreed by the European Parliament on 11 November, 2010 was finally adopted on 21 July, 2011. Member States have until 22 July 2013 to implement its provisions. Readers should note that at the date of publication, Level 2 Commission Regulation on implementing the Directive has not yet been published in final form, and all information in this document is subject to change, following such publication. One of the main objectives of the Directive is to increase transparency around the activities of Alternative Investment Fund Managers ("AIFMs") and their Alternative Investment Funds ("AIFs") in their dealings with investors and competent authorities. The Directive deals with provisions on transparency in three sections, Article 22, which deals with the Annual Report of an AIF, Article 23, which deals with Disclosure to Investors, and Article 24, which deals with Reporting Obligations to Competent Authorities. Set out below is a brief consideration of each of these provisions as set out at Directive level, and as discussed further by ESMA in its technical advice to the European Commission on possible implementing measures of the Directive. Annual Reports An AIFM is required to produce, for each of the AIFs it manages, and for each of the AIFs it markets in the EU, annual reports ("Annual Reports") which must be: made available no later than 6 months post financial year end; provided to investors on request; and made available to competent authorities of the home member state of the AIFM and, where applicable to the competent authorities of the home member state of AIF. ESMA acknowledges the number of national and international accounting standards that set out prescriptive rules for annual reports, seeks to avoid applying rigid rules or templates around this and recommends as a general principle, that all information provided in the annual report must be presented in a manner that provides materially relevant, reliable, comparable and clear information that investors may need in relation to particular AIF structures. Content of Annual Report The Directive prescribes certain minimum standards to be met in the content of the annual report, as follows: balance sheet/statement of assets and liabilities; income and expenditure account for financial year: report on activities of the financial year; any material changes during the financial year; total amount of remuneration paid to AIFM staff for the financial year (fixed and variable) number of beneficiaries, and any carried interest; and the aggregate remuneration broken down by senior management and staff of the AIFM whose actions have a material impact on risk profile of the AIF. For the purposes of (c) above, ESMA advises that at least the following elements be included: an overview of investment activities during the year and overview of AIF's portfolio at period end; overview of AIF performance over the period; and material changes in the information disclosed. The accounting information in the annual report must be audited and prepared in accordance with accounting standards of the home Member State of the AIF, or of the third country where the AIF is established and with the accounting rules laid down in the AIF own rules of incorporation. The report should also include a "fair and balanced" review of the activities and performance of the AIF, and description of principal risks and investment or economic uncertainties that the AIF may face. Where necessary, analysis should include both financial and (where applicable) non-financial key performance indicators relevant to the AIF. This disclosure should not seek to make public any proprietary information of the AIF. Disclosure of "Material Changes" A "material change" means "changes in information if there is a substantial likelihood that a reasonable investor, becoming aware of such information, would reconsider its investment in the AIF, including for reasons that such information could impact an investor's ability to exercise its rights in relation to its investment, or otherwise prejudice the interests of one or more investors in the AIF". For the purposes of compliance with paragraph (d) of "Content of the Annual Report" above, ESMA advises that the AIFM must assess changes in the information to be disclosed. Such information...

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