Out-Law Guide | 03 Jun 2013 | 10:33 am | 4 min. read
This guide was last updated in June 2013.
The Alternative Investment Fund Managers Directive (AIFMD) is one of a package of measures drawn up by the European Commission to regulate financial services in the wake of the global financial crisis. It aims to establish a harmonised regulatory framework for monitoring and supervising the perceived risks posed by unregulated funds such as private equity and hedge funds. Rather than regulate the funds themselves, the Directive targets their fund managers. For more see Out-Law.com's guide to the AIFMD.
The ESMA's guidelines to 'key concepts of the AIFMD' (33-page / 474KB PDF) provides definitions of a number of terms in the Directive.
The purpose of the definitions is to ensure that there is a "common, uniform and consistent
application of the concepts in the definition of ‘AIF’ in Article 4(1)(a) of the AIFMD by providing clarification on each of these concepts," the guidelines say.
The Directive's definition
Article 4(1)(a) of the AIFMD defines an alternative investment fund (AIF) as:
'AIFs' means collective investment undertakings, including investment compartments thereof, which:
The guidelines provide definitions for:
Collective Investment Undertaking
The Guidelines say that something is a 'collective investment undertaking' if:
The Guidelines define "general commercial or industrial purpose" as the purpose of pursuing a business strategy which includes running a predominantly commercial or industrial activity.
ESMA has included a definition of 'day-to-day discretion or control', defined as a form of direct and on-going power of decision over operational matters which extends further than the ordinary exercise of decision through voting at shareholder meetings. Even if one of more of the shareholders/unitholders have day-to-day control the fact that others do not have control implies that the undertaking may still be a collective investment undertaking.
The Guidelines confirm that where an investment compartment of an undertaking exhibits all the elements in the definition of AIF, this should be sufficient to determine that the undertaking as a whole is an AIF.
Where an undertaking (or person acting on its behalf) takes steps to procure the transfer or commitment of capital by one or more investors to an undertaking in order to invest it in accordance with a defined investment policy then this should amount to the activity of "raising capital".
It is immaterial to the meaning of "raising capital" if the activity takes place only once.
Where capital is invested in an undertaking by a member of a 'pre-existing group' – for the investment of whose private wealth the undertaking has been exclusively establish - this would fall out of the scope of what amounts to "raising capital".
The concept of 'pre-existing group' is based on the notion of family members. The Guidelines provide a clear list of people included within the family relationship and also confirm that a 'pre-existing group' may be established irrespective of the type of legal structure put in place by the family group, provided the family members remain the sole ultimate beneficiaries.
The most significant change to the definition of 'raising capital' in the final guidelines is the removal of an exemption from the scope of 'raising capital'. The draft guidelines suggested that capital investment in an undertaking by a member of the undertaking's governing body, a legal person managing the undertaking or an employee of the undertaking should fall outside the scope of 'raising capital' in Article 4(1)(a) of the AIFMD. ESMA has removed this exemption from Guidelines.
Number of investors
An undertaking which is not prevented by national law, rules or instruments of incorporation from raising capital from more than one investor should be regarded as an undertaking which raises capital from a number of investors, even if there is only one investor.
In circumstances where the undertaking is prevented from raising capital from a number of investors it should still be regarded as an undertaking which raises capital from a number of investors if the sole investor:
The effect of this is that master/feeder fund structures (where the single feeder invests in a master) would still be viewed as raising capital from a number of investors.
Defined Investment Policy
A 'defined investment policy' is a policy specifying how the pooled capital in an undertaking is to be managed to generate a 'pooled return' for the investors from whom it has been raised.
The term 'pooled return' means the return generated by the pooled risk arising from the acquiring, holding or selling of investment assets, irrespective of whether different returns to investors are generated.
The Guidelines set out factors that would, singly or cumulatively, tend to indicate the existence of a defined investment policy. The factors are:
ESMA deems 'investment guidelines' to mean any guidelines of an undertaking that determine investment criteria other than those set out in an undertaking's business strategy which have a 'general commercial or industrial purpose'.
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