The Alternative Investment Fund Managers Directive (Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers) (the “Directive”) entered into force on July 21, 2011 with E.U. Member States having until July 22, 2013 to implement it. The Directive broadly aims to create a single harmonized pan-European regulatory framework for E.U.-established managers (“Managers”) of alternative investment funds (“AIFs”). It also sets out a regime for the marketing in the E.U. of both E.U. and non-E.U. AIFs by non-E.U. Managers. Our memorandum focuses on the specific provisions of the Directive and the U.K.’s implementing regulations (Draft Statutory Investment 2013 No. 0000, Financial Services and Markets, The Alternative Investment Fund Managers Regulation 2013) (“Draft Regulations”) applicable to non-E.U. Managers seeking to market non-E.U. AIFs to E.U. investors.
The key points for non-E.U. Managers seeking to market non-E.U. AIFs to E.U. investors are that:
- from July 22, 2013, non-E.U. Managers may continue to make use of Member States’ existing private placement regimes provided that (i) they comply with certain disclosure and transparency requirements, (ii) appropriate information sharing agreements are in place between the relevant Member State and the jurisdictions of establishment of both the non-E.U. AIF and the non-E.U. Manager, and (iii) the jurisdictions of establishment of both the non-E.U. AIF and the non-E.U. Manager are not on the Financial Action Task Force’s Non-Cooperative Country and Territory list (the Three Conditions);
- in the U.K., non-E.U. Managers will be required to notify the U.K.’s Financial Conduct Authority (“FCA”) before they can commence marketing the AIFs that they manage to U.K. based investors. The Draft Regulations provide a one year transitional period under which non-E.U. Managers that immediately prior to July 22, 2013 are managing and marketing (in an E.E.A. state) AIFs (whether E.U. based or not), need not comply with the Draft Regulations (in other words, will not need to meet the Three Conditions or the requirement to first notify the FCA) until July 22, 2014;
- from July 22, 2013, restrictions on “asset stripping” will apply during the first 24 month period following acquisition of control of a non-listed company;
- from the second half of 2015, non-E.U. Managers may, subject to advice from the European Securities Markets Authority (“ESMA”) on the extension of the regime to non-E.U. Managers, use the pan-E.U. passport regime to market their AIFs provided that the relevant non-E.U. Manager first becomes authorized in a Member State and complies with the various regulatory requirements that authorization implies, including, in relation to disclosure and transparency, limits on leverage, the appointment of a depositary and remuneration;
- from the end of 2018, and subject to ESMA’s advice, the existing Member States’ private placement regimes may be withdrawn; and
- reverse solicitation or passive marketing should, depending on local Member State law and regulation, remain available to non-E.U. Managers up until and after 2018. The concept of reverse solicitation is enshrined in the Draft Regulations.
The full memo, originally published by Davis Polk on June 4, 2013, is available here.