What is the AIFMD?
An EU Commission Directive proposed in 2009 in response to the strong political will for more rigorous regulation of alternative investment activities in the light of the financial crisis.
Its objectives are to create a set of harmonised rules on the management and marketing of alternative investment funds in Europe, thereby increasing investor protection via greater transparency and more stringent operational rules.
The Directive still requires Level 2 clarification; but should be implemented into national law throughout the EU by 22 July 2013.
The Luxembourg draft law transposing AIFM was submitted to parliament in August 2012 and it is hoped to pass into legislation by year-end.
On November 20 and 21 the annual European Alternative Investment Funds conference is set to take place in Luxembourg and topping the agenda will be the topic of the EU Commission’s Alternative Investment Fund Management Directive (AIFMD).
Since the introduction of its Specialised Investment Fund (SIF) legislation in 2007, Luxembourg has become a well-known centre for “alternative” investments. As such, the provisions of the Directive, which seeks to create a set of harmonised rules on the management and marketing of alternative funds in Europe, is likely to have a significant impact.
A Specialised Investment Fund is a vehicle that is aimed at sophisticated investors with a minimum of €125,000 to invest. It has a broad range of eligible investments, such as hedge funds, fund of hedge funds, private equity and venture capital – strategies that Luxembourg is becoming increasingly well-known for.
The AIFMD will have an impact on a wide variety of fund types including: hedge funds, private equity, venture capital, real estate funds and investment trusts. However, it is not just fund managers who will be affected – depository banks, administrative agents and delegates will also have new obligations. Certain investment vehicles, which had not been previously regulated, will now have to be reviewed in light of the directive.
Sandrine LeClercq, Counsel, Baker and McKenzie Luxembourg
As such, Sandrine LeClercq, Counsel at Baker McKenzie Luxembourg advises that those affected do not underestimate the time required to be certain they satisfy AIFM requirements, even if Level II clarification is yet to be given. “Many organisations are likely to need 12 months or more to mobilise the resources internally to bring to fruition the various tasks which implementation imposes.”
“Management companies face increased reporting and will need to upgrade their governance, as well as review the eligibility of their delegation chain. For banks, the challenge is to design new operational solutions and, in particular, review their custody chain with regards to the procedures and links to counterparties, as well as all the underlying contractual documentation.”
It is in part thanks to innovative legislation, such as that for SIFs and its reputation as a compliant yet lightly regulated jurisdiction, fully compliant with EU directives that Luxembourg has the potential to replace Dublin as the hub for alternatives within the EU. Dublin has a head start with 40% of the alternative fund administration market.
“Asset managers do not really perceive a significant difference between Luxembourg and Ireland. Any differences between the two are purely based on matters of convenience,” reports Yves De Naurois, Managing Director of IRML Luxembourg. De Naurois feels that Luxembourg’s speed in transposing the Directive, will assist in placing the Grand Duchy firmly on the alternative investment map.
Is Luxembourg ready? In the light of the huge swathe of regulatory changes influencing so many players, possibly not. However, its track record of being the first to transpose UCITS legislation established it as a world leader; let’s hope this will also be the case for AIF’s.