Whilst the Netherlands might not be foremost when people think about choosing their preferred European jurisdiction, there are many advantages it has to offer. The Dutch regulator, the Authority for the Financial Markets ('Autoriteit Financiële Markten', or 'AFM'), is proactive, swift at processing licenses for full-scope AIFMs, and easy to approach if the manager has anything that needs clarifying.
As well as having first-rate transport, operational and technical infrastructure supported by a deep pool of professional advisers, the Netherlands' reputation is helped by having:
• A political and economic climate, which has been stable for decades;
• An exceptional number of bilateral tax treaties, low corporate tax rate and availability of favorable tax incentives;
• A positive approach taken by successive governments and an open-minded, dialogue-based attitude of the tax authorities; and
• A highly educated, flexible and multilingual workforce.
Under AIFMD, there are two routes for managers to pursue: licensing or registration.
A Dutch AIFM wishing to manage a Dutch AIF will be required to obtain a license from the AFM and will then be subject to ongoing regulatory supervision by the regulator. Once the manager has obtained a license they are free to manage either a Dutch AIF, or an AIF domiciled in any other EU Member State, and benefit fully from the passporting regime.
An EU manager based outside of the Netherlands will be required to have a license to manage a Dutch AIF.
The second route is to avoid licensing and apply for an exemption, whereby the manager is only subject to certain registration and reporting obligations. This registration regime is referred to in the Netherlands as the 'light regime'. Managers must include a selling restriction in a prescribed form in all advertisements and documents announcing the offer of participations in their fund.
Upon registration, general information on the Dutch manager and the AIF will be published in a public register.
"The registration regime may be attractive for managers based inside and outside the Netherlands, due to the lower costs involved. In the case of a foreign manager, a management company should be incorporated in the Netherlands, which will act as the Dutch AIFM," explains Gerben Oldekamp (pictured), Managing Director, Circle Partners, a global independent fund administrator headquartered in the Netherlands.
In order to comply with an exemption from the licensing regime, a manager's total assets under management in the AIF (and other vehicles including managed accounts) must not exceed:
• EUR 100 million; or
• EUR 500 million, in the case of AIFs that are not leveraged and have no redemption rights exercisable during a period of five years from the date of initial investment in the relevant AIF.
At the same time:
• Participations are offered to fewer than 150 investors; or
• The minimum investment amount is EUR100,000; or
• Participations are only offered to professional investors.
Under the light regime, the manager – also referred to as a de minimis manager – does not need to appoint a local auditor for the AIF.
If they wish, however, start-up managers can choose to opt-in to the AIFMD from day one and apply for the license. There are certain merits to doing this: namely that it can help managers to attract institutional investors as it demonstrates that the manager is serious about the long-term prospects for their business. In addition, the AIF will have the ability to be freely passported to professional investors across the EU.
"Under the light regime, managers will only be allowed to privately place the fund to professional investors on a country by country basis using national private placement regimes," explains Oldekamp. "The benefit of remaining below the threshold is that managers can operate the fund at lower cost and still be registered in an EU country with a good reputation and a good network of service providers. There's an abundance of knowledge and talent here that start-ups can draw upon.
"Also, an important factor to consider under the light regime is time to market, which in most cases is only a few weeks."
That said, the Netherlands remains attractive even for AIFMs that are licensed and fall under the full scope of AIFMD.
For example, there is no requirement by the AIFM to appoint local parties – fund administrator, custodian, etc – and the average onboarding time is very low compared to other jurisdictions, according to Oldekamp.
"Also, the cost of launching an AIF is very reasonable. It makes the Netherlands a very attractive alternative jurisdiction.
"For AIFs that go beyond EUR100 million and fall under the full scope of AIFMD, provided the manager is authorised by an equivalent regulator in their home jurisdiction – the FCA, for example – they do not need to have any substance in the Netherlands. What managers typically do is avoid obtaining a license and instead become part of an umbrella structure where they run a sub-fund and act in an advisory capacity, or they establish a standalone fund and appoint a Dutch management company as their outsourced AIFM," says Oldekamp.
If the manager crosses the EUR100 million and does not appoint an external AIFM, the burden will fall directly on them to operate as a licensed AIFM, with all the proper risk and compliance functions in place, segregation of duties (risk management and portfolio management), regulatory reporting requirements under Annex IV and so on.
"It's difficult to do that if the team only has four or five people. It would require fund managers to significantly beef up their operations – which is why most fund managers go down the outsourced AIFM route where they take care of all the heavy lifting and managers can focus on running the fund strategy," adds Oldekamp.
In terms of structuring the AIF, the most commonly used open-ended investment fund vehicle for investing in daily traded assets in the Netherlands is the FGR; a fund for joint account. This would be the choice for hedge funds, whereas a Dutch limited partnership, commanditaire vennootschap ('CV'), would ordinarily be used for real estate and private equity funds.
Since the formation of an FGR is by way of an agreement instead of a deed of incorporation before a notary, its set-up is usually very quick and cost-efficient.
"The FGR structure is very flexible and cost efficient by comparison to Luxembourg and Ireland. In addition, there is no need to appoint local parties, unlike Luxembourg where you need a local custodian, a local fund administrator and so on; that's not the case when setting up a Dutch fund structure so it makes life easier for start-ups," says Oldekamp.
He explains that Circle Partners takes care of the entire process of setting up a new fund structure under the light regime; setting up the legal ownership, opening bank accounts, providing fund administration and fund accounting services, financial, regulatory and tax reporting services, registrar and transfer agency services.
"Then, once the manager comes close to the EUR100 million threshold, we assist with the licensing application process by referring the manager to our local law firm contacts here in the Netherlands.
"We have a boutique approach to supporting clients. We take them by the hand and help them in all aspects of getting the fund up and running," concludes Oldekamp.