Alternative Investment Fund Managers Directive Research Articles

SPACs in the AIFMD Context

The growth in the use of Special Purpose Acquisition Companies (SPACs) within the context of the European market economy has been particularly evident in recent months. When structuring SPACs, the question of whether and when SPACs fulfil the objective criteria of the activities indicative of the characteristics of their specific management under the Alternative Investment Fund Managers Directive (AIFMD), arises. SPACs are, in fact, similar in their basics to the alternative investment funds established under this directive and whose investment strategy is directed towards private equity. The aim of this paper is to answer the presented question, which is crucial for current financial market practice. If the intended investment structure of SPACs fulfils the criteria of the AIFMD, it can only be structured under the rules (and restrictions) arising from respective regulations. Any misconduct is otherwise severely sanctioned.

Italian Tax Authorities Provide First Clarification of the New Tax Exemption for Dividends Related to Direct Investment by EU/EEA Investment Funds

In this note, the authors discuss Answer 327/2021 of the Italian tax authorities, which addresses the new tax exemption for dividends on qualified shareholdings in relation to investments in companies resident in Italy for tax purposes. The Answer addresses foreign undertakings for collective investment established in an EU Member State or EEA country that exchanges adequate information with Italy, in particular, where the managers are subject to the EU Alternative Investment Fund Managers Directive (2011/61) rather than the EU UCITS Directive (2009/65).

The Regime of Depositary Under the Alternative Investment Fund Managers Directive 2011: French and Luxembourg Perspectives

The Alternative Investment Fund Managers Directive 2011 requires every fund manager to designate a depositary for every fund it manages. This is the first time in the history of European alternative investment fund industry that an appointment of a depositary is obligatory across all Member States. We analyse the differences in the implementation of this regime in French and Luxembourg law. AIFM Directive, UCITS Directive, depositary

Rule omission, rule migration and the limits of financial industry power

AbstractThis paper seeks to deepen our understanding of financial industry lobbying efforts that result in specific regulatory rules being dropped from the regulatory agenda, or what we call ‘rule omission’. Critically, existing research either ignores rule omission or characterizes it as the pinnacle of lobbying success. We argue that only in carefully mapping out industry preferences and tracking what happens to rules following their omission can we say something about the extent to which finance wins or loses in its effort to shape regulation. Our analysis is based on two in‐depth case studies from the European Union: (1) solvency rules in the Institutions for Occupational Retirement Provision Directive (IORPP II), where rule omission does reflect a strong case of industry influence; and (2) short selling rules in the Alternative Investment Fund Managers Directive (AIFMD), a case of rule omission resulting in more stringent rules over industry activities.

The Directive on Alternative Investment Funds Managers (AIFMD): An Introduction

This is the introductory chapter to the third edition of the book ' The Alternative Investment Fund Managers Directive', 3rd. ed. 2020, provided with kind permission by the publisher WoltersKluwer. The chapter provides an overview of the legislative history leading to the AIFMD, introduces to the regulatory approach of the AIFMD, discusses latest developments with regard to the AIFMD (including the Cross-Border Fund Distribution Directive and Regulation, Brexit as well as AIFMD II) and ends with a detailed overview of the full book. It argues that the AIFMD's specific regulatory approach to collective investment schemes paired with the European passport explains why almost a decade after its adoption the AIFMD has become the role model for fund legislation worldwide.

Zur möglichen Qualifikation von Mietenpools und Alternativen Investmentfonds nach dem AIFMG

In an update of the „Frequently Asked Questions zur Anwendung des Alternative Investmentfonds Manager-Gesetz (AIFMG)“ (FAQs) by the Austrian Financial Market Authority (FMA) regarding the Austrian implementation (AIFMG) of the Alternative Investment Fund Managers Directive (AIFMD) dated 9 October 2020, rental pool constructions were also included as possible alternative investment funds (AIF) pursuant to the AIFMG. However, such AIF qualification needs to be assessed on a case-by-case basis and can only be affirmed in case such rental pool or rental poollike structure fulfills the requirements of a collective investment scheme. Against this background, the present article intends to provide a practical overview of cases in which a rental pool can qualify as AIF and cases in which it cannot.

Developments in relation to risk management for European investment funds

This paper gives an overview of the recent developments in liquidity risk management for investment funds through the example of measures applicable to funds domiciled in Luxembourg. The paper first outlines the current context regarding risk management, with a focus on liquidity risk management. It then presents risk-management requirements to the undertakings for collective investment in transferable securities (UCITS) and alternative funds. Next, the paper discusses liquidity risk management with consideration of its legal definition and management practices and the need to address such risks at each stage of the life of the fund (design stage, postlaunch stage and stress testing through the funds’ activity). This study is based on the frame set by EU (European Union) law provisions, such as the UCITS Directive or The Alternative Investment Fund Managers Directive, and national Luxembourg legislation, including Luxembourg’s regulatory implementation of international standards such as The International Organization of Securities Commissions (IOSCO) Recommendations on liquidity risk management. This paper further outlines the important role of the Luxembourg regulator, the Commission de Surveillance du Secteur Financier (the CSSF), which has been proactively developing at a very early stage a strong administrative practice to ensure that liquidity risk-management processes meet the required standards in order to promote a sound and prudent fund financial situation. Therefore, the authors recommend strongly that the risk-management system of each relevant market player be checked for compatibility with the IOSCO recommendations and, where appropriate, with the CSSF Circular 19/733. They also stress the importance of adequate stress testing on risks related to liquidity to prepare for volatile times such as the current situation with the global pandemic coronavirus disease-2019 (COVID-19).

The Alternative Investment Fund Managers Directive: Ten Years After

The Alternative investment Fund Managers Directive 2011 is a first pan-European regulation of alternative investment fund industry. It establishes the set of duties for the managers that manage hedge funds and private equity funds. Adopted as a response to the 2007/8 financial crisis, its effectiveness can be questioned after almost ten years of evolving financial markets. This article thus will analyse whether the Alternative Investment Fund Managers Directive (AIFMD) still represents an effective regulatory tool from the three viewpoints: (1) prevention of future financial crises and protection of investors; (2) establishment and maintaining of single European market for financial services; and (3) accommodating for the needs of financial industry post-Brexit. Alternative investment Fund Managers Directive

Establishing an EU internal market for depositaries

Purpose This paper aims to examine the rationale for the establishment of a depositary passport as the next logical step in building an internal market for investment funds in the European Union (EU). It makes the point that the de facto prohibition of depositary passporting poses risks to financial stability and has an adverse impact on investor protection in EU member states, which do not have a fully developed funds industry. Design/methodology/approach This paper analyses both the arguments in favour and against the adoption of a depositary passport. Moreover, it examines this proposal in the context of different approaches to fostering the internal market such as mutual recognition, harmonisation of regulation, reflexive governance of financial supervision and centralised supervision. Findings Based on the review of the current EU legal framework, this paper, subsequently, puts forward possible solutions for the establishment of an internal market for depositary business, which solutions have been discussed with various experts in the field to assess their feasibility in practice. Originality/value The paper contributes to the debate on the EU internal market in the field of asset management, which is topical in view of the upcoming review of the EU’s Alternative Investment Fund Managers Directive.

ESMA’s Mission to Integrate ESG Risks and Factors into UCITS and AIFMD: Value Added or Additional Administrative Burden

Environmental, social, and governance (ESG) factors are getting more and more important for the fund industry, not only for the management companies of the funds but also especially for the investors who become more sensitive to these kinds of aspects. This increasing importance has also been recognized by the European Commission, which officially mandated on July 24, 2018, the European Securities and Markets Authority to provide technical advice on how sustainability risks and factors should be integrated in European regulation. This article examines which approach the European Securities and Markets Authority suggests in order to integrate sustainability risks and factors in the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive and the Alternative Investment Fund Managers Directive and how this is seen by the market, as burden or value added, and therefore will be in the interest of UCITS management companies, self-managed UCITS investment companies, Alternative Investment Fund Managers, and their associations and for investors in these products. <b>TOPICS:</b>ESG investing, portfolio construction, portfolio theory <b>Key Findings</b> • ESG factors are getting more important for market players, and there are still a lot of challenges ahead. • ESMA’s initiative was well received from the market and helps to close the gap. • Market participants mainly don’t see this initiative as administrative burden but more a value added.

Will the EU Commission Successfully Integrate Sustainability Risks and Factors in the Investor Protection Regime? A Research Agenda

Building a common EU framework for sustainable finance undoubtedly implies the integration of sound and sustainable processes and skills across the whole structure and governance of financial institutions. Consequently, a new financial paradigm is going to be needed, which will require the strengthening of investor care and protection, so contributing to the restoration of trust in the financial sector. In particular, on 18 December 2018, the European Securities and Markets Authority (ESMA) launched two public consultations on draft technical advice for the integration of sustainability risks and factors into the Directive on Markets in Financial Instruments (MiFID), the Alternative Investment Fund Managers Directive (AIFMD), and the Undertakings for Collective Investment in Transferable Securities Directive (UCITS) regimes, with the aim to clarify the so-called fiduciary duties and to increase transparency in the financial services industry. However, the success of the EU initiatives on investor protection regulation may be seriously endangered by the existence of many challenges, weaknesses, and contradictions raised by economists and stakeholders in relation to the definition of sustainability, ESG data availability and reliability, the development of an EU taxonomy, conflicts of interest, product governance, and suitability assessment. This paper starts by briefly analyzing the recent developments of the regulation of sustainable finance at the global level, then offers a more detailed view on the establishment of a common regime on sustainable finance in the EU, with particular reference to the action plan ‘Financing Sustainable Growth’. Then, it examines the recent proposals for regulation on sustainable finance, specifically considering the barriers to the integration of sustainability risks and factors in the EU investor protection regulation—with particular reference to investment services—with respect to its four main dimensions: (1) disclosure of product information, (2) conduct of business (COB) rules, (3) product governance and intervention, and (4) financial education. The paper concludes that the EU reforming proposals, though admirable, risk oversimplifying a complex issue that cannot be easily solved without considering its practical implications on each category of financial operators in the performance of different financial services.

Crypto mining business models: Points of contact to the AIFMD

This paper provides a technical overview and legal analysis of the activity of miners in proof of work-based crypto assets, focusing on the Bitcoin Blockchain as the most prominent example. The result of this analysis — mainly that mining is a financial service similar to the services performed by traditional financial intermediaries — is used as the foundation of a detailed legal analysis of a widespread crypto mining business model under the Alternative Investment Fund Managers Directive (AIFMD). The paper shows that such business models offer mining packages directly to retail investors via the Internet, and the operators of these so-called mining farms thereby raise capital from the public to generate a pooled return for investors in the form of ‘mined’ crypto assets, for example, Bitcoin (‘BTC’). A detailed analysis of this fund-like structure leads to the conclusion that many currently operating crypto mining business models are already regulated by the AIFMD if all the relevant criteria of the AIFMD are fulfilled. This legal assessment has to be made on a case-by-case basis and entails serious consequences — depending on the national transposition of the AIFMD, it can even result in the prohibition of marketing units and shares of such AIFs to retail investors, as is the case in Austria. Operators of such business models that are already active on the market and that fall under the regulation of the AIFMD would be faced with registration or authorisation requirements and potential legal repercussions for operating an AIF without licence.

Governance and remuneration under the Investment Firm Regulation and Directive

The proposed Investment Firm Regulation and Directive (IFR/IFD) are currently going through the legislative process. The overall policy direction is to make the current prudential regime for investment in Europe more proportionate and risk-responsive. But, as this paper will argue, despite the wholesale changes in the capital calculation method, policymakers remain reluctant in relaxing the rules on governance and remuneration. This is perhaps due to the continuing concerns about weak governance, especially with respect to risk management and excessive executive pay. The risks to the financial system and customers, caused by excessive risk behaviour and inappropriate incentive schemes, mean that it is difficult for regulators to give an inch in this space. Nevertheless, small and non-interconnected firms will benefit from the easing of regulation, although it is believed that not a large number of investment firms in the UK fall in this category. Better news is that the regime will not apply the bankers’ bonus cap rule. This paper will analyse the details of these governance and remuneration rules, and consider their interaction with other regimes (eg Markets in Financial Instruments Directive II, Alternative Investment Fund Managers Directive) and what are the likely supervisory implications in the UK, assuming the Financial Conduct Authority (FCA) will implement this regime, post-Brexit.

Regulatory Competition in European Partnership Law: A Case of Alternative Investment Funds

This paper analyses the recent reforms of a limited partnership used for structuring alternative investment funds in the UK (2017), Luxembourg (2013) and France (2015). The introduction of the Alternative Investment Fund Managers Directive (2011) has prompted the EU Member States to modernise their legal structures to get ahead of an increasing competition as a leading fund and fund manager domicile. This paper argues that the UK Private Fund Limited Partnership is the most competitive legal structure in terms of management rights accorded to investors and tax-transparency. Luxembourg provides an equally competitive limited partnership model, which will be used extensively by fund managers and investors post-Brexit. A regulatory competition in partnership law will incite other EU Member States to review their legislation applicable to this legal form.

A Fresh Perspective on Hedge Funds: Exploring New Opportunities Post-Brexit

Hedge funds – rather a financial term than a separate legal category – denote distinct investment funds that use sophisticated investment strategies and are ‘lightly’ regulated as compared to traditional retail-oriented funds. Largely unregulated prior to the 2007/2008 financial crisis, they are now within the tight regulatory perimeter of the Alternative Investment Fund Managers Directive (2011). This article discusses the future of the UK hedge fund industry post- Brexit and explores the opportunities offered by Luxembourg hedge fund legislation. After the exit from the EU, the UK will be considered a ‘third country’ for the purposes of the Directive. Consequently, the UK hedge fund managers will lose the EU passport to manage and market their funds to the EU investors. This article argues that Luxembourg may serve as a jurisdiction of choice for UK hedge fund managers to establish their subsidiaries and act through them to be able to continue offering their units to EU investors. The overview of the recent reforms in both jurisdictions (UK Private Fund Limited Partnership 2017, Luxembourg Reserved Alternative Investment Fund 2016 and Special Limited Partnership 2013) is discussed in terms of their competitiveness post-Brexit.

AIFMG und Stiftungen

The following article deals with the question if and under which circumstances the AIFMG (Alternative Investmentfonds Manager-Gesetz) applies to Austrian private foundations (osterreichische Privatstiftungen) under the Private Foundation Act 1993 (Privatstiftungsgesetz) as alternative investment funds. The topic will be discussed from different angles and especially possible exemptions will be examined by means of the methodology of the AIFMD (Alternative Investment Fund Managers Directive) respectively the AIFMG.

Policy, Regulation and Private Equity: A Rich Research Agenda? (Book Chapter)

Effective from 2013, the Alternative Investment Fund Managers Directive (or AIFMD) fundamentally altered the regulatory environment for European private equity funds, establishing – for the first time – a set of pan-EU rules for private equity and venture capital funds with assets under management that exceeded certain thresholds. For many fund managers this has entailed considerable change that has permeated most aspects of their business, including additional capital requirements, stricter conduct of business rules, enhanced disclosures to regulators, investors and the outside world and, for some, has even required amendments to remuneration policies. It is not easy to discern a clear policy objective for many of these changes, and it is therefore hard to assess whether they achieved their aims. Certainly, in relation to many of the new rules, there is scant evidence that investors wanted them, nor that they will benefit from them; it is also unclear how the rules will alleviate systemic risk, particularly insofar as they apply to private equity funds. This Chapter reviews the rules that were included in AIFMD, seeks to identify their policy objectives, and suggests a research agenda that could assist policy-makers in future reviews of the Directive and further regulatory interventions in the sector.

Developing Macroprudential Policy for Alternative Investment Funds

This joint ECB-DNB Occasional Study aims to inform the ongoing discussions about an EU-level framework for operationalising macroprudential leverage limits for alternative investment funds (AIFs). It builds on, and extends, the analysis of an ECB-DNB special feature article published in the ECB's Financial Stability Review in November 2016. First, this Occasional Study presents new EU-level evidence suggesting that leveraged funds exhibit stronger sensitivity of investor outflows to bad past performance than unleveraged funds, which has the potential to exacerbate systemic risk. Second, it devises a framework for assessing financial stability risks from leverage in investment funds. This is applied to leveraged AIFs managed by asset managers in the Netherlands using Alternative Investment Fund Managers Directive (AIFMD) data for the two-year period from the first quarter of 2015 to the fourth quarter of 2016. Third, it discusses the potential effectiveness and efficiency of various designs for macroprudential leverage limits. To this end, it builds on the findings for the Dutch AIF sector and suggests design options for further exploration at EU level. Beyond assessing financial stability risks from leverage in the Dutch AIF sector, the case study aims to show how equivalent information on AIFs at the European level - which will be made available to the European Securities Markets Authority (ESMA) and the European Systemic Risk Board (ESRB) in the coming years - could be used when developing an EU-level framework for operationalising macroprudential leverage limits.

Alternative Investment Fund Managers Directive and its Impact on Malta’s Financial Service Industry

The introduction of the Directive on Alternative Investment Fund Managers (AIFM Directive 2011/61/EU) in 2013 means a radical transformation of the EU regulatory landscape for the whole alternative investment fund industry. Taking into account the growing meaning of the alternative investment fund industry in Europe, the aim of the paper is to assess the impact the Directive on Alternative Investment Fund Managers (AIFMD) will have on the Alternative Investment Fund Managers (AIFMs) managing Alternative Investment Funds (AIFs) in the EU. The research is based on the case of Malta, which is a quickly growing financial centre. The main findings are based on an analysis of questionnaire responses conducted with key players in the fund industry regulated and licensed by the Malta Financial Services Authority. This study provides an extensive analysis of the AIFMD and its impact on Malta’s financial service industry. It has highlighted various factors that will have a positive or negative impact on the industry resulting from the AIFMD. The paper provides recommendations for further development of the Maltese fund industry in the context of the AIFMD that can be partially applied to other fund domiciles.

The Marketing of Hedge Funds in the United Kingdom: Did the System Maintain Its Attractiveness After the Transposition of the Alternative Investment Fund Managers Directive?

The Marketing of Hedge Funds in the United Kingdom: Did the System Maintain Its Attractiveness After the Transposition of the Alternative Investment Fund Managers Directive?