AIFMD Client Memorandum - Investment Management & Funds Practice

Investment Management & Funds Practice AIFMD Client Memorandum April 2012 INDEX PARAGRAPH PAGE 1 INTRODUCTION.................................................................................................................................1 2 HOW DO YOU IDENTIFY THE AIFM?...............................................................................................1 3 IS THE AIFMD APPLICABLE TO YOU?.............................................................................................2 3.1 Scope – In or out of Scope..................................................................................................................2 3.2 Grand-Fathering Rules........................................................................................................................2 3.3 Exemptions..........................................................................................................................................3 3.4 Opt-in Possibility..................................................................................................................................4 4 WHAT IF YOU ARE A NON-EU AIFM?..............................................................................................5 5 TIMELINES .........................................................................................................................................5 6 CAPITAL REQUIREMENTS FOR THE AIFM.....................................................................................5 6.1 General Principle.................................................................................................................................5 6.2 Initial Capital and Own Funds Notions................................................................................................6 6.3 Additional Own Funds Requirement ...................................................................................................6 6.4 Additional Own Funds Requirement for Potential Professional Liability Risks...................................6 6.5 Computation Rules..............................................................................................................................7 6.6 Risks to be Covered............................................................................................................................7 6.7 Professional Indemnity Insurance.......................................................................................................8 7 DELEGATION.....................................................................................................................................9 7.1 Regulatory Notification........................................................................................................................9 7.2 Sub-delegation..................................................................................................................................13 7.3 Letter-box Entity Issue.......................................................................................................................14 8 OPERATIONAL AND ORGANISATIONAL REQUIREMENTS.........................................................14 8.1 Operational Requirements & Policies ...............................................................................................14 8.2 Organisational Requirements............................................................................................................17 9 TRANSPARENCY REQUIREMENTS...............................................................................................20 9.1 Annual Reporting...............................................................................................................................20 9.2 Disclosure to Investors......................................................................................................................21 9.3 Reporting to Regulator......................................................................................................................21 10 CONCLUSION ..................................................................................................................................22 SCHEDULE 1 Third Country Conditions and Requirements 1 1 INTRODUCTION This memorandum aims to provide an overview of the key elements of Directive 2011/61/EU of the European Parliament and of the European Council of 8 June 2011 on Alternative Investment Fund Managers (the AIFMD) and is written particularly with a view to managers of investment funds investing in non-liquid assets. This memorandum may help you in determining the consequences the AIFMD will have with respect to the business and affairs of your investment management organisation and the funds managed by you. The AIFMD entered into force as of 21 July 2011 and must be implemented by the Member States of the European Union (EU) into national law not later than 22 July 2013. On 16 November 2011, following various market consultations, the European Securities and Markets Authority (ESMA) issued a final report which provides ESMA’s technical advice on Level II implementing measures concerning the AIFMD (the ESMA Advice). The ESMA Advice is the response to the European Commission’s request for assistance to ESMA’s predecessor CESR as of 2 December 2010. This memorandum is based on the information as set out in the AIFMD itself and the ESMA Advice. At the time of drafting this memorandum the European Commission is still in the process of preparing the implementing measures based on the ESMA Advice. As a result thereof and of the fact that Member States have not yet implemented the AIFMD, the final implications of the AIFMD may differ from what is set out in this memorandum. Although this memorandum has been compiled with great care, Loyens & Loeff cannot accept any liability for the consequences of making use of the information set out in this memorandum without further advice. The information provided is intended as general information and cannot be regarded as advice. In case you wish to receive any further information regarding the AIFMD or any of the information set out in this memorandum, please let us know. We are more than happy to assist you in making your business and the funds managed by you AIFMD compliant. Any reference in this memorandum to an Article shall, subject to any contrary indication, be construed as a reference to an article of the AIFMD. 2 HOW DO YOU IDENTIFY THE AIFM? The AIFMD states that any legal person whose regular business is to manage (the AIFM) one or more AIFs (as defined below) must comply with the AIFMD unless they fall out of its scope, see paragraph 3 (Is the AIFMD applicable to you?) below. An alternative investment fund (AIF) is defined as a collective investment undertaking, or its compartments: • 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; and 2 • which is not covered by the Directive 2009/65/EC (Undertakings for collective investment in transferable securities (UCITS and the UCITS Directive)). An AIFM may be either: (a) ‘external’ i.e. an external manager, which is the legal person appointed by the AIF or on behalf of the AIF and which is responsible for managing the AIF; or (b) ‘internal’ i.e. where the legal form of the AIF permits an internal management and where the AIF’s governing body chooses not to appoint an external AIFM, the AIF itself, which shall then be authorised as AIFM. Whereas Article 6(5)(d) states that, in order to be authorised under the AIFMD, AIFMs have to provide portfolio management functions and risk management functions, Article 4(1)(w) defines the activity of managing AIFs as performing at least portfolio management functions or risk management functions. ESMA considers that this means that an entity performing either of the two functions (i.e. portfolio management or risk management) is to be considered as managing an AIF according to Article 4(1)(w). Such entity must therefore seek authorisation as an AIFM under Article 6, it being understood that delegation of either the portfolio management or the risk management function is allowed as long as it is in accordance with Article 20 of the AIFMD. 3 IS THE AIFMD APPLICABLE TO YOU? 3.1 Scope – In or out of Scope The AIFMD applies to AIFMs established in a Member State of the EU which manage one or more AIFs irrespective of where such AIFs are established. In addition, the AIFMD applies to AIFMs that are established outside of the EU to the extent that they manage AIFs established within the EU, or market AIFs (wherever these funds are located) to investors in the EU. Subject to transitional provisions in relation to non-EU based AIFMs (and non-EU AIFs), the AIFMD enables authorised AIFMs to freely market their alternative investment funds to professional investors (within the meaning of the Directive 2004/39/EC (MiFID)) in the EU. This is commonly referred to as the AIFMD’s passport. The AIFMD does not apply to inter alia, (i) holding companies, (ii) pension funds, and (iii) securitisation vehicles. It furthermore does not apply to AIFMs managing UCITS funds only or to non-EU AIFMs managing one or more non-EU AIFs without marketing said AIFs in the EU. 3.2 Grand-Fathering Rules The AIFMD mentions two grand-fathering rules for AIFMs managing existing AIFs of the closed-ended type that have been offered pursuant to a private placement. If such AIFs (i) do not make any additional investments after 22 July 2013, or (ii) closed their subscription period for investors prior to 21 July 2011 and if their term expires at the latest by 22 July 2016, the relevant AIFM may, however, continue to manage such AIFs without needing an authorisation under the AIFMD. 3 3.3 Exemptions The AIFMD provides for the following exemptions: (a) AIFMs in so far as they manage AIFs whose only investors are their parent undertakings, their subsidiaries or other subsidiaries of their parent undertakings, provided that none of those investors itself is an AIF (intra group exemption); or (b) AIFMs that directly or indirectly (through a company with which such AIFM is linked by common management or control, or by a substantive direct or indirect holding) manage: (i) AIFs whose assets under management (the AuM), including any assets acquired through use of leverage, in total do not exceed a threshold of EUR 100 million; or (ii) AIFs whose AuM in total do not exceed a threshold of EUR 500 million, that are unleveraged and have no redemption rights exercisable during a period of 5 years following the date of the initial investment in each AIF (de minimis exemption). AIFMs that are exempt on the basis of the de minimis exemption must nonetheless register with the relevant supervisory authorities of their home Member State (the Regulator). Such exempted AIFMs (the Exempted AIFMs) will, at the time of their registration with their Regulator, identify the AIFs that they manage to the Regulator, and provide information to the Regulator on the investment strategies of such AIFs. After their registration is completed, the Exempted AIFMs will have to regularly (at least annually) provide the Regulator with information on the main instruments in which they are trading, on the principal exposures and on the most important concentrations of the AIFs they manage in order to enable the Regulator to effectively monitor systemic risk. Should the Exempted AIFMs no longer fall under the de minimis exemption, they will have to notify the Regulator of such change and apply for a full authorisation. 3.3.1 AUM Calculation For the purpose of calculating the value of the AuM in light of the de minimis exemption: (a) UCITS for which the AIFM acts as designated management company under the UCITS Directive; (b) foreign exchange and interest rate hedging positions that according to the investment strategy of the AIF are not used to generate a return; and (c) AIFs for which the AIFM would not require to be authorised pursuant to the aforementioned grand-fathering rules, are excluded from the threshold calculation. AIFs investing in other AIFs (including a compartment of an AIF investing in another compartment of that same AIF) managed by the same AIFM may be excluded from the threshold calculation subject to appropriate adjustments for leveraged exposure of these AIFs. ... - tailieumienphi.vn