As a result of an extensive review process, the EU Commission assumes that the roughly ten-year-old AIFM Directive is by and large functioning and fulfils its original objectives – better investor protection, effective supervision of alternative investment fund managers (AIFMs), transparency for investors and supervisory authorities as well as better market monitoring at the macro level. Nevertheless, it sees a need for improvement in certain areas. In addition to numerous detailed changes, the proposed amendments, which the EU Commission considers essential, can be grouped into five areas:
Supplementing the depositary regime
For alternative investment funds (AIFs), the softening of the principle that the depositary must be domiciled in the same member state as the AIF in question is of particular importance here. It was not possible to achieve a real passporting for depositaries. However, it should now again be possible to appoint a depositary from another member state upon application to the competent supervisory authority. This would be particularly helpful in member states where the supply of competent depositaries is limited.
Introduction of liquidity management tools
This applies in open-ended funds to simplify liquidity management, especially in phases of increased unit redemptions.
Reporting
Gaps should be closed while limiting overlaps between different reporting regimes. AIFMs must assume that reporting will be redesigned in practice, i.e. new templates and new reporting items are to be expected. Significantly, under the proposal, AIFMs will also be required to inform investors about remuneration in relation to the management of the AIF borne by the AIFM and associated companies. Quarterly investor reporting is also proposed. This should cover all direct and indirect remuneration, including remuneration at the level of the investments of the AIF, as well as the establishment of subsidiaries and companies by the AIF, the AIFM or their affiliates. This is likely to become complex in practice in some cases.
Delegation
The EU Commission sees a very different application of the regulations within the member states and therefore an increased risk for investors, especially in the case of the delegation of tasks to (non-EU) third countries. In future, ESMA is to be informed by the national supervisory authorities about more extensive outsourcing to third countries. Here, the focus is still on the fight against circumvention practices in the Brexit context. It is also clarified that outsourcing includes all tasks of the AIFM listed in Annex I of the AIFM Directive and all ancillary services. In future, there will be a two-year peer review process at the level of the European securities regulator ESMA to jointly examine outsourcing. Superficially, the aim is to avoid the emergence of letterbox AIFMs. Behind this, however, lies ESMA’s well-known scepticism towards service AIFMs. National supervisory authorities are thus to be encouraged to take a stricter course.
Loan originating funds
For the first time, loan originating funds are regulated in terms of content. The EU Commission believes in the model in principle, but wants to achieve uniformity between the member states, which handle lending by AIFs inconsistently. The proposal therefore includes substantive requirements for investment and risk limits, among others.
Outlook
What is missing from the proposal, contrary to initial expectations, are any changes or facilitations to the cross-border marketing of AIFs, especially for only registered AIFMs. This is regrettable, especially for young PE and VC managers, who would have benefited immensely from easier cross-border marketing.
In the next few weeks, interested groups will have the opportunity to comment on the EU Commission’s proposal. This will be followed by the EU legislative procedure with the participation of Parliament and Council. Fundamental and lengthy discussions are not expected in view of the relatively straightforward proposal. However, the area of delegation in particular has already received some attention, as some stakeholders feel that the proposed regulations are not strict enough. So it remains exciting and surprises can never be ruled out.