Recent developments in the Alternative Investment Fund Managers Directive (AIFMD) have had significant coverage. But how does it affect the retail market?
The AIFMD regulates the cross-border management and marketing of alternative investment funds (AIFs) – effectively any fund that isn’t a Ucits – within the European Economic Area (EEA). While funds established and managed in the EEA can be marketed to professional investors under an AIFMD ‘passport’, funds established or managed outside the EEA can be marketed only in EEA member states under the more restrictive ‘national private placement regimes’.
Since its implementation, the AIFMD has been criticised for the inconsistent way different member states are operating the passport, and because of the reduction in investor choice resulting from the marketing restrictions applicable to non-EEA AIFs and managers.
Indeed, had the UK implemented the AIFMD as restrictively as some member states, there would have been a noticeable impact on the listed investment company sector, since many of these companies are established in the Channel Islands, which are outside the EEA.
Embedded in the AIFMD was a requirement for the European Securities and Markets Authority (Esma) to give advice by July 22 2015 on the extension of the AIFMD passport to non-EEA member states (known as ‘third countries’). Esma has issued this advice and more general guidance on the functioning of both the passport and the national private placement regimes. So, what are the headline messages?
Esma has advised that, subject to some minor bedding-down issues, both the AIFMD passport and the national private placement regimes are functioning well alongside each other.
This is good news, since it had been feared that national private placement regimes would gradually be withdrawn as routes for marketing AIFs into the EEA. Unless there was a corresponding extension of the passport, this would have had a significant impact on the investment companies sector, since Channel Islands funds are commonly used as alternatives where a UK investment trust would not be tax-efficient.
Esma’s advice gave no sign that it was considering recommending the withdrawal of national private placement regimes in the near future.
Secondly, Esma has recommended the extension of the AIFMD passport to ‘third countries’. So far, it has considered six, and recommended extending the passport to only three: Guernsey, Jersey and, subject to some proposed legislative changes taking effect, Switzerland.
Jersey and Guernsey have both worked hard to update their regulatory regimes to cater for those wishing to ‘opt in’ to a regime that has been more or less copied from AIFMD. This, together with the local regulators’ history of co-operation with Esma and EEA regulators, made it relatively straightforward for Esma to conclude that their regimes were equivalent to AIFMD.
Esma did not recommend extending the passport to Hong Kong, Singapore or the US. The reasons were slightly different in each case, but the main themes were: lack of time to perform a full analysis of the relevant regulatory regimes; and a concern that extending the passport to those jurisdictions would lead to an uneven playing field in that local managers would have better access to EEA investors than EEA managers would have to local investors.