Outsourcing and delegation in the post-AIFMD environment

Abstract

This paper reviews the delegation requirements of the European Alternative Investment Fund Managers Directive (AIFMD) and what they mean for the hedge fund industry. These new rules cover a number of important and interrelated areas, including the general provision of delegation, providing objective reasons for del­egating, resolving potential conflicts of interest in the delegation process, delegating to third countries outside the European Union, as well as any rules that pertain to the delegation of some specific activities. These activities include the delegation of portfolio or risk management duties and the ability of a depositary to delegate their duties to a third party. Under AIFMD, liability regarding delegation has changed somewhat. In the post-AIFMD world the onus now falls squarely on the manager. It will be difficult under the regulations for managers to blame delegated third parties in the case of errors or problems with a European fund.