RC: In brief, could you provide an outline of Europe’s AIFMD, touching on its key functions and the drivers behind its implementation?

Small: The driving force behind the AIFMD was the concern, underlined by the financial crises, that the activities of some fund managers could serve to spread or amplify risks through the financial system and that uncoordinated national responses made the efficient management of those risks difficult. The purpose of the AIFMD was therefore to bring fund managers within the European regulatory umbrella. The AIFMD achieves this by establishing a common set of requirements governing the authorisation and supervision of fund managers. In addition, the AIFMD sets out remuneration rules aimed at aligning fund managers’ interests with those of investors, limitations on leverage and asset stripping, a disclosure regime and rules in relation to the marketing of funds by non-EU fund managers. Fund managers are also required to appoint depositaries for each fund to monitor cash-flows, safe-keep fund assets and have general oversight over the fund. Finally, the AIFMD introduces a pan-European passport under which EU fund managers may market EU funds across the Member States.

von Livonius: The rationale behind the AIFMD, probably one of the most significant legislative projects within the enhanced ‘post Lehman’ financial markets regulation, is to provide a harmonised regulatory framework for the so-far rather fragmented supervisory landscape in Europe. To achieve this goal, the AIFMD introduced a uniform regulatory framework for all collective investment vehicles which are not yet covered by the scope of the UCITS Directive. There is only a very limited number of collective investment structures remaining outside the scope of the AIFMD. However, the AIFMD is more a manager regulation than a product regulation. But the impact of the AIFMD goes beyond the regulation of AIF managers as it also has a significant impact on the regulation of investment activities by regulated investors, such as insurance companies and pension schemes, in AIFs.

Jul-Sep 2014 Issue

Davis Polk & Wardwell London LLP

King & Wood Mallesons LLP

Schulte Roth & Zabel International LLP