AIFMD - Private Placement Regimes Are Changing Affecting Everyone
The AIFMD (Alternative Investment Fund Management Directive) legislation in Europe was only expected to impact European based managers in the first instance. Non-EU managers were expecting to be able to continue to use the Private Placement regimes which were anticipated to remain in place until 2018.
The introduction of legislation in Europe is changing the world. The AIFMD (Alternative Investment Fund Management Directive) legislation in Europe was only expected to impact European based managers in the first instance. Non-EU managers were anticipating to be able to continue to use the private placement regimes which were expected to remain in place until 2018.
Whilst the private placement regimes are staying, some countries have changed their rules - and this is having a major effect on fund raising from European Institutions. As a consequence managers, no matter where they are located in the world will need to consider what effect this may have on their fund raising efforts.
What has changed?
Many countries have had their own rules in relation to private placement, in an attempt to ensure that its residents and institutions do not get hurt by unscrupulous fund managers or the like. In other countries the concept of "private placement" is not known.
The implementation of the AIFMD across Europe has created the opportunity for these arrangements to be reviewed and some countries have taken the opportunity to make changes.
Every country is different! In France authorisation is required from the AMF, in Germany, following the abolishment of the private placement regime authorisation is required from BaFin, whereas in the Netherlands a non-EU manager can distribute funds without a licence if it is to "qualified investors".
As a consequence any Private Equity or Real Estate manager, anywhere in the world, who is considering raising funds In Europe will need to consider where they will be marketing and what action they need to take, in advance of any marketing activities. Some have suggested "Reverse Solicitation" may be a way around this - others have advised strongly against.
What happens if I don't comply?
Again this depends on the country. In Belgium a fine of up to ?2.5m can be levied, in France criminal sanctions may apply and in Germany fines and even imprisonment may be imposed. Italy appears to be a little less harsh and may only declare any transactions "null and void". But the message is that non-compliance is likely to lead to serious issues for the manager.
Marketing into Germany
The German market is one of the most important fund raising markets in Europe and whilst the rules in Germany have changed, Germany is certainly "open for business".
For those EU managers who have already or are in the process of registering their businesses with a regulator under the AIFMD, they should be able to "passport" their fund into Germany through the appropriate processes and no further action is required.
Non-EU managers will need to consider the German requirements and ensure they have everything in place.
What needs to be considered?
Before a manager can market into Germany they will need to ensure that:
- There is a Cooperation Agreement in place between their own regulatory body and BaFin (the German regulator)
- The country/state of origin of the non-EU AIFM (Alternative Investment Fund Manager) does not appear on the Financial Action Task Forces' blacklist of non-cooperative countries and
- Tax Agreements are in place with the country/ state of origin of AIF in respect of the efficient information exchange in tax matters.
On the assumption that all the required agreements are in place then consideration will need to be given to the BaFin notification requirements, which include amongst others:
- A Business Plan to include details of the fund (AIF) and its domicile
- A description of the AIF, the information disclosed to investors and the relevant legal documentation
- Evidence/proof to confirm there is no marketing to Retail Investors
- Name of the Depositary being used.
Much of the above is relatively easy to achieve, although the requirement for a Depositary is a new concept for many, especially non-EU managers.
What to do next
Europe is clearly open for business. But managers considering raising funds from European investors need to consider where their "target" markets will be, well in advance of any initiatives. Getting it wrong is not an option.
Given the current environment, markets will have to be considered on a country by country basis. This is likely to require specific advice, local applications and approvals.
As Europe moves towards the global implementation of the AIFMD life will become easier for all involved - but as with all "transition" periods, the interim phase will not be easy.
How can Augentius help?
Augentius can act as your EU Depositary in either the UK or Luxembourg and we have already been appointed by a number of managers to act in this role. Consideration also needs to be given to the best structure to accommodate EU investors. Feeder funds domiciled in Luxembourg, the UK or elsewhere may well be worthy of consideration. Again, Augentius can share our knowledge with you and assist in the administration of any structures specifically set up to accommodate EU investors.