AIFMD aims to regulate the performance of each AIFM in an EU member state, whether or not the AIFM is established in the EU. The impact on each AIFM depends on whether the AIFM has its registered office in a member state of the EU or if the registered office is outside the EU. Additionally, the fact that the authorised, registered AIF has its registered office in an EU Member State or not plays a significant role.
The European Alternative Investment Fund Management Directive (AIFMD) lays down rules concerning the authorisation, the current operation, as well as the transparency of Alternative Investment Fund Managers.
The Directive significantly affects the structure and practical business organisation of alternative fund managers and the non-UCITS sector including hedge funds, private equity and real estate funds.
Alternative Investment Fund Managers (AIFMs) will have to comply with the specific substance, conflict of interest, risk management and liquidity management requirements.
The purpose of the Directive is:
- To ensure that all Alternative Investment Fund Managers are subject to appropriate authorisation and regulatory requirements;
- To provide a structure to monitor prudential risks through periodic reporting obligations;
- To ensure the adequate monitoring and control of prudential risks;
- To provide a common approach to protect professional investors;
- To improve accountability of fund managers;
- To develop a single European market for Alternative Investment Funds (AIF).
Implications For Alternative Investment Fund Managers
Managers who are indirectly appointed to make investment decisions or provide risk management services to AIFs may be subject to the AIFM Directive.
The implementation of the AIFM offers significant flexibility to alternative investment managers to choose the operating model that best suits their needs. The Directive focuses mainly on the regulation of the Manager.
In order to become an AIFM, an entity must submit an application and obtain authorisation from the Commission de Surveillance du Secteur Financier (CSSF). The request should include information on the directors of AIFM, its shareholders, and Alternative Investment Funds (AIF), which intends to manage and demonstrate how the entity will comply with the requirements of the AIFM.
Alternative Investment Fund (AIF) Definition
The vehicles that can be qualified as AIF under the AIFMD are detailed below:
- Undertakings for Collective Investment (ICO) of Title II of the Law of December 17, 2010
- Specialised investment funds (SIF) under the Law of 13 February 2007, as amended
- The investment company in risk capital (SICAR) under the Law of 15 June 2004, as amended
- Other currently unregulated vehicles in Luxembourg that meet the criteria of an AIF (eg some SOPARFI (Holding Companies) can be rated as AIF.