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THIRD COUNTRY REQUIREMENTSSelling under the National Private Placement Regimes
IntroductionDue to its broad scope, the Alternative Investment Fund Managers Directive (“AIFMD”), not only applies to alternative investment fund managers (“AIFMs”) and alternative investment funds (“AIFs”) that are based in the European Union (“EU”), it also applies to non-EU AIFs that:
>> market their units within the EU to European investors; or
>> that appoint an EU AIFM.
The AIFMD definition of what constitutes an AIF is broader than currently defined in many offshore jurisdictions, including the Cayman Islands and British Virgin Islands, in that it captures:
>> both open and closed ended funds; and
>> all types of strategies, including private equity and property fund structures.
Exemptions/Out Of Scope*>> Subject to registration with local competent authorities, the aggregate assets under management of the AIFM are below the
following thresholds:• €100m, including leverage; or• €500m, provided the AIFs do not employ any leverage and they are closed-ended for 5 years
>> The only investors in the AIF are the AIFM and/or entities within the AIFMs group structure;
>> The AIF is restricted in its constitutive documents to having only one investor;
>> Holding companies, pension schemes, securitization special purpose vehicles, employee benefit schemes and family trusts; or
>> Reverse solicitations.
* Note: Although these exemptions are provided for under the Directive, application of these rules may vary between member states.
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Marketing is defined in the AIFMD as “a 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 or with a registered address in the Union”. Therefore ‘passive’ marketing is not covered by the AIFMD. However, this exemption is to be interpreted narrowly and only genuine non-solicited approaches by investors to AIFM will be covered. It should also be noted that the definition of what constitutes a reverse solicittion differs in each Member State.
Minimum AIFMD Requirements For Third Countries From 22 July 2013 In order for non-EU AIFs to continue to market their units to European investors throughout the EU post 22 July 2013, in addition to complying with the local private placement regimes (“PPRs”), they will also have to comply with the following AIFMD requirements:
Non-EU AIFMs
Non-EU AIFMs that manage or market AIFs in the EU, must comply with the following AIFM obligations:
>> Annual Report requirements - must produce annual reports and make them available to investors and to EU Regulators upon request within 6 months of the financial year end;
>> Disclosure to investor requirements;
>> Reporting obligations to the competent authorities in the EU MS where the non-EU AIF is marketed; and
>> If applicable, the asset stripping/disclosure of control requirements.
EU AIFMS with non-EU AIFs
In the case of EU AIFs managing non-EU AIFMs, they will have to comply with almost all of the AIFMD obligations, with the exception of the full depositary provisions.
Pre-conditions of AIFMD post 22 July 2013 >> Co-operation agreements must be in place between the competent authorities in the EU Member States where the non-EU AIFs are to be marketed and the regulators in the countries where the non-EU AIF and the non-EU AIFM are established. Click here for a list of co-operation agreements in place with the Cayman Islands.;
>> Neither the non-EU AIF nor the non-EU AIFM can be established in a FATF blacklisted jurisdiction.*
Additional National PPR RequirementsIt is important to note that the PPRs are optional and that each EU Member State may impose stricter requirements under their PPRs over and above the minimum AIFMD requirements set out above. This may include full compliance with AIFMD or indeed a closure of their PPR to non-EU AIFs entirely. It is our understanding that the UK has indicated an intention to continue its PPR to non-EU AIFs, such as those based in the Cayman Islands, British Virgin Islands and Jersey and that it is in fact extending the grandfathering provisions to such structures (subject to meeting certain criteria), which means that they will not have to comply with the minimum AIFMD requirements set out above until 22 July 2014. However, other countries, such as Germany, France, Italy and Spain have indicated an intention not to permit non-EU AIFs to be sold under their PPRs.
* None of the jurisdictions in which Walkers offers legal advice (i.e. BVI, Cayman, Ireland and Jersey) are FATF blacklisted jurisdictions.
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DisclaimerThe information contained in the factsheet is necessarily brief and general in nature and does not constitute a detailed summary of all of the relevant information or legal advice. Appropriate legal or other professional advice should be sought for any specific matter.
Timeline For Compliance
Next StepsWhat are the next steps for AIFMs:
>> Identify all AIFs within global network;
>> Determine whether they are EU based or in the case of non-EU AIFs, whether they are marketed within the EU to European investors or have an EU based AIFM;
>> Establish whether you can avail of an exemption - if not, you are in scope of AIFMD and will have to determine;
• whether the EU is a key source of capital;
• who the AIFM is for each AIF (If within the EU – full compliance with AIFMD – other than full depositary rules, if a non-EU AIFM is appointed, only the minimum AIFMD requirments set out above will apply); and
• which EU Member States the non-EU AIFs will be marketed in and analyse the PPRs in each of these countries.
Walkers has strong relationships with law firms in each EU jurisdiction and can either co-ordinate the advice on your behalf where multiple jurisdictions are involved, or make introductions.
