Australia: How will the European Union Directive on Alternative Investment Fund Managers (AIFMD) affect Australian fund managers?

Last Updated: 25 February 2012
Article by Fadi Khoury


The recent economic landscape has seen a significant regulatory overhaul of the financial services sector in Europe. This article highlights the impact of the European Union Directive on Alternative Investment Fund Managers (AIFMD) and how it will affect Australian fund managers seeking to undertake capital raising activities in Europe.

Due to the wide scope of the reforms, it is important that fund managers should start thinking about how the reforms may impact them and what they may need to do to prepare for when the reforms take place.

European Union Directive on Alternative Investment Fund Managers (AIFMD)

What is the AIFMD?

The AIFMD came into force on 21 July 2011 and will bring a wide range of currently unregulated funds under the regulatory framework of the European Union (EU). Each EU member state will be required to transpose the AIFMD into national law by 22 July 2013.

The AIFMD creates a comprehensive EU-wide regulatory and supervisory framework for the management of alternative investment funds (AIFs). It lays down rules for the authorisation, ongoing operation and transparency of managers of AIFs. An AIF is defined as any collective investment undertaking (which is not an undertaking for collective investment in transferable securities (UCITS)) which raises capital from a number of investors for investment in accordance with a defined investment policy for the benefit of those investors.

All non-UCITS open and closed end funds will be caught by the AIFMD unless a specific exemption applies to them (discussed further below). A wide range of AIFs are captured by the AIFMD including real estate funds, hedge funds, private equity funds, commodity funds, debt funds, energy and carbon funds, infrastructure funds, investment trusts and real estate investment trusts.

The scope of the AIFMD is wide and will apply to any legal person appointed by or on behalf of the AIF who will be responsible for managing one or more AIFs. It will also apply to "internally managed" AIFs, where the governing body elects not to appoint an external fund manager. It will therefore be important for external fund managers to understand their position and identify whether they are appointed by or on behalf of the AIF, or as a delegate of the person appointed. 'Managing' means providing risk management or portfolio management services to the AIF. This distinction will need to be made in order for fund managers to understand how and when the AIFMD applies to them.

The AIFMD will not apply to the managers of:

  • one or more AIFs whose only investors are companies within the same group as the manager (provided that none of these investors itself is an AIF);and
  • "small" AIFs with aggregate total assets of (a) less than €100 million, including any assets financed through leverage; or (b) less than €500 million, subject to the AIF not having any debt and not having redemption rights during a period of five years following the date of initial investment in the AIF; and
  • certain securitisation special purpose vehicles.

Managers of small AIFs will however be subject to separate compliance obligations. The nature of the obligations of such managers is being finalised, and is expected to include the obligation to:

  • register with the competent authorities in their home Member State;
  • notify the competent authorities of any AIFs they manage, and provide information on their investment strategies;
  • provide regular information to the competent authorities on the main instruments in which they are trading, principal exposures and most important concentrations; and
  • notify the competent authorities if they no longer meet the size conditions above and (where this is the case) apply for full authorisation within 30 days.

The passporting system

As of 2013, EU fund managers authorised under the AIFMD will be permitted to market their funds to professional investors across the EU in reliance on a passport. In effect, this passporting system will ensure that EU fund managers do not require a licence to market their funds in other member states. As of late 2015, this passporting system may (if recommended by the European Securities and Markets Authority (ESMA)) be extended to allow non EU fund managers to passport their non EU AIFs throughout the EU (and it may become compulsory from late 2018). Non EU fund managers wishing to use the passport will have to become authorised in the EU and comply with the AIFMD's requirements in full. Until 2015, non EU fund managers' only option will be to market in the EU using national private placement regimes (provided certain preconditions are met (see section 2 below)). From 2015 until late 2018, they will be able to choose between private placement and the passport.

Enlarge image here

What will a non EU fund manager need to comply with if they elect to apply for the passporting system in 2015?

To obtain a passport, non EU fund managers of non EU funds must become authorised in an EU "Member State of reference" and must comply with the AIFMD in full. This includes compliance with strict provisions in relation to the use of liquidity, limits on leverage, use of depositaries, delegation to service providers, valuation of assets, minimum capital requirements, remuneration policies and practices, use of risk management systems and more general reporting obligations. For many non EU managers of private equity funds and hedge funds, the requirements under the AIFM D would also mean that their existing custodian and prime brokerage relationships would need to be restructured in order to comply with the AIFMD.

If however a non EU manager decides that adherence to the passporting requirements would be unduly burdensome, then it could continue to operate under the national private placement regimes until at least 2018.

What will a non EU fund manager need to comply with when they operate under the national private placement regimes from 2013?

Non EU fund managers should be aware that, in order to continue to market to professional investors in an EU member state via that member state's national private placement regime, a minimum of three conditions must be met, as follows:

  • Disclosure: The first condition is that the non EU manager must comply with certain disclosure and transparency provisions under the AIFMD, these being in relation to:
    • making available an annual report for each non EU AIF which it markets in the EU;
    • making available to investors certain information before they invest, as well as notifying them of any material changes in that information;
    • regular reporting by the non EU manager to the competent authorities in the EU member state where the AIF is marketed; and
    • where a non EU AIF acquires "control" (individually or jointly) of an unlisted or listed EU company, the non EU Manager must make a number of disclosures to that company, its shareholders and to regulators and may not (if the company is unlisted, and subject to exemptions) facilitate any share buy-back, distribution, capital reduction or share redemption for two years after acquiring control.
  • Co-operation: The second condition is that appropriate information exchange agreements must be in place between (a) the competent authorities in EU member state where the non EU AIF is to be marketed; (b) the supervisory authority of the domicile of the non EU AIF; and (c) the supervisory authority of the country where the non EU manager is established. This is to ensure that information on the non EU AIF and its manager can be exchanged efficiently to allow the competent authorities of the relevant EU member states to carry out their supervisory duties effectively under the AIFMD.
  • Financial Action Task Force (FATF): The third condition is that at the time of marketing neither the non EU AIF nor the non EU manager should be authorised or registered in a country which is listed by FATF on anti money laundering and terrorist financing as a "Non-Cooperative Country and Territory".

If any of these "minimum" conditions are not satisfied, then a non EU manager cannot continue to market to, and therefore raise capital from investors in the EU.

In addition, non EU managers should be aware that EU member states have discretion under the AIFMD to impose stricter conditions on non EU fund managers. As a result, the three conditions referred to above may not be exhaustive.

What does this mean for you in 2012?

With such a significant overhaul of the regulatory system, if the EU is a key ongoing source of capital, Australian fund managers should carefully consider what changes may need to be made to their operations and marketing activities in order to comply with the AIFMD. In particular, managers that choose not to seek the new passport will need to be in a position to meet the new transparency and disclosure obligations being introduced by the AIFMD for those undertaking private placements in the near term.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions