What a third country offers asset managers under AIFMD
AIMA CEO Andrew Baker recently commented that the complicated nature of AIFMD, the different interpretations of EU Member States and variety of approaches from third countries meant that fund managers are facing complex choices. Here, Fiona Le Poidevin (pictured), Chief Executive of Guernsey Finance, explores what a third country can offer asset managers under AIFMD.
Andrew Baker, CEO of the Alternative Investment Management Association (AIMA) – launching an AIFMD implementation guide jointly with PwC, said: “AIFMD is a complicated piece of legislation. It is being implemented in EU Member States in a variety of different ways, while non-EU or ‘third country’ jurisdictions are also taking differing approaches to it. This leaves hedge fund firms across the world facing a lot of complex choices.”[i]
While Mr Baker represents the hedge fund sector, I would argue that his sentiments apply to the wider funds industry. Much wider; it is necessary for all asset managers that wish to market their funds in Europe to have considered all of the options available regarding AIFMD so that they can make a fully informed decision.
Guernsey is not in the EU or wider EEA (although it is in the European time zone) but has introduced a dual regulatory regime which allows Guernsey funds to continue to be distributed to both Europe and to non-European countries. Guernsey’s existing long-standing flexible regulatory regime remains in place for those investors and managers not requiring an AIFMD compliant fund, including those that avail of EU National Private Placement (NPP) regimes and those who market to non-EU investors; and there is a new opt-in regime which offers full AIFMD equivalence – for those for whom it is necessary or otherwise desirable to have an AIFMD compliant fund vehicle to take to market.
Which way to go is solely a commercial decision driven by distribution policies. Indeed full-blown AIFMD compliance should only be sought if there are particular reasons to do so. Managers and funds with no connection to the EU should continue to use Guernsey’s existing flexible regulatory regime which is completely free from the requirements of AIFMD and as such, will have significant operational and cost benefits.
As a third country, Guernsey based managers and funds who want to access Europe continue to use NPP regimes, which are expected to remain until 2018.[ii] The NPP route will likely be favoured by many given that the requirements to satisfy AIFMD will be significantly over and beyond what is required under NPP.
It remains that Guernsey has an existing base of clients for whom Europe is at least a very important market and for some their main market. The opt-in equivalent regime which has been in place since 2 January 2014 will be appropriate and appealing to such funds. It is for this reason Guernsey enacted the equivalent rules ahead of when they were actually required to do so.
Full passporting for non-EU AIFMs is expected from July 2015. Guernsey managers will be ideally placed to take advantage of being able to market on a pan-European basis with a single authorisation, as passporting is currently envisaged to operate.
Parallel and feeder structures
European Directives cater for European investors and so if you only need to comply with them for certain investors, then it is advisable to structure in a way so as to greatly reduce the compliance obligations and costs that come with complying with those rules.
Funds not solely focussed on Europe should consider parallel or feeder investment structures whereby European and non-European business can be separated to achieve efficiencies, i.e. AIFMD compliance would only apply to the relevant European element of the overall structure.
The message to highlight is that an AIFMD compliant structure does not have to be based in a mainland European domicile – Guernsey provides a European platform yet offers optionality at the same time.
This article is written by Fiona Le Poidevin is Chief Executive of Guernsey Finance – the promotional agency for the Island’s finance industry. For more information call +44 (0) 1481 720071, email email@example.com or visit www.guernseyfinance.com.
An original version of this article was published in Investment Europe, March 2014.
[i] AIMA announces AIFMD implementation tools, 31 January 2014
[ii] At the time of writing, Guernsey has signed 27 cooperation agreements with the securities regulators from the following EU / EEA countries: Austria; Belgium; Bulgaria; Cyprus; Czech Republic; Denmark; Estonia; France; Finland; Germany; Greece; Hungary; Iceland; Ireland; Latvia; Liechtenstein; Lithuania; Luxembourg; Malta; Norway; Poland; Portugal; Romania; Slovak Republic; Sweden; The Netherlands; and United Kingdom.