The Luxembourg law of 12 July 2013 on alternative investment fund managers (AIFM Law) entered into force on 15 July 2013.
The AIFMD covers all alternative sectors such as hedge funds, real estate and private equity, but also traditional sectors where the funds are not registered as UCITS. It applies to funds and certain corporate collective investment vehicles.
The adoption of this directive represents an opportunity for Luxembourg to create a specific status for Special Limited Partnership Companies giving promoters of alternative funds an exclusive jurisdiction for domiciling their funds and holding structures of their investments.
Moreover, the new law, which came into force on 15 July 2013, establishes a special tax regime with a reduced tax rate on carried Interest. This in turn will attract fund managers to Luxembourg.
AIFMD background - What is the purpose?
In the aftermath of the financial crisis of 2008, the AIFM directive has been established to bring more supervision to the alternative investment fund industry (hedge funds and private equity funds).
The purpose is to ensure that regulators have an opportunity to monitor what type of investments are offered to institutional and qualified investors, and bring some transparency to the market.
How will AIFMD impact your business?
Every fund manager - EU or non-EU - who wants to offer investment solutions to EU-based clients such as banks, pension funds, corporate treasury, family offices and qualified high net worth investors will need to consider this directive.
The directive seeks to mitigate the potential risks relating to alternative investments.
The main areas for consideration are:
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Organisation: Clarify the roles and structure, ensuring that all functions are clearly defined, whether internal or outsourced and communicated.
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Transparency: Provide investors and the regulator with an annual report and provide investors with specific information prior to investment.
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Valuation: Ensure that the valuation of assets is performed according to well-defined rules in order to ensure that the value of the assets is known, well-documented and supervised by an independent party.
Most private equity and hedge fund managers will need to become an AIFM or use an AIFM to fulfil their duties.
Exemption for AIF Managers (under the exemption of the Law)
Should the AIF Manager do not manage more than EUR 100,000,000 (or EUR 500,000,000 for closed-end fund), the registration as AIFM can be obtained by a simple registration with the CSSF, who will deliver a confirmation of the registration and the AIFM will be mentioned on the website of the CSSF under this category.
Obligations of the AIFM are quite simple as they fall under the exemption of the Directive (no need of custodian, auditor, etc.) assuming that the AIF it manages in Luxembourg and abroad do not have an Asset Under Management higher than the above mentioned thresholds (100 Mio or 500 Mio).
AIFMD timeline
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June 2011
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The Directive comes into force
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July 2013
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Deadline for transposing the directive into national law. Passport becomes available for EU
AIFMs marketing EU AIFs in the EU
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January 2015
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Passport becomes available for all EU AIFMs marketing Non-EU AIFs in the EU and for Non-EU AIFMs marketing EU/Non-EU AIFs in the EU (if approved by the European Securities & Markets Authority (ESMA))
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2017
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EU Commission conducts review of application and scope of Directive
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April 2018
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Second ESMA report on the functioning of the passport and the possible ending of national private placement regimes
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