The AIFMD, and the accompanying regulation, does what it says on the tin – it regulates the managers of funds other than Undertakings for Collective Investments in Transferable Securities (UCITS), so-called alternative investment funds or AIFs. Unlike the UCITS directive, AIFMD does not include authorization or regulation of the funds themselves, but it provides a passport for any AIF to be marketed cross border within the European Union (EU) to professional investors.

The AIFMD sets out the authorization process and ongoing requirements across a wide range of areas. Alternative Investment Fund Managers (AIFMs) have had to comply with the requirements since 22 July 2013, which also cover governance, minimum capital and conflicts of interest identification and management.

The directive has a global impact

It imposes requirements on third country asset managers to whom AIFMs delegate portfolio management. Also, any funds being marketed into the EU from third countries are impacted, as are managers outside the EU that manage or wish to manage EU-domiciled AIFs. The Commission has yet to activate the third country passport for non-EU AIFs and non-EU AIFMs. Meanwhile, national private placement regimes continue to apply. 

Member States may choose to allow certain types of AIF to be marketed to retail investors in their jurisdictions, and may impose additional requirements on the AIFM or the AIF for this purpose. Member States must allow other AIFMs or AIFs established in another jurisdiction and that comply with the additional national requirements to be marketed to retail investors in their jurisdictions. Effectively, this is a bilateral passport for non -UCITS retail funds.

Each piece of EU post-financial crisis regulation includes a review clause, each with a different scope and timeline. The Alternative Fund Managers Directive (AIFMD) is no exception: it specifies that the European Commission should have begun the review of the application and scope of the directive in July 2017. As part of that review, the Commission engaged KPMG on a report to look at whether the AIFMD’s objectives have been met, by assessing a number of the AIFMD requirements against five principles: effectiveness, efficiency, coherence, relevance and EU added value.