The Alternative Investment Fund Managers Directive

AIFMD is the principal EU regulatory framework for private equity and venture capital fund managers. It was ‘onshored’ into UK law during the Brexit process. The UK therefore currently has a near identical parallel framework for UK-based alternative investment fund (AIF) managers (AIFMs), although some divergence will occur when the EU updates its framework during 2022 (see below for further detail).

AIFMD provides a pan-European regulatory regime for AIFMs, including private equity and venture capital fund managers. The rules cover a wide range of areas, including operations, reporting and risk management. Smaller AIFMs with under €500m AUM (also known as “sub-threshold AIFMs”) are subject to much lighter requirements, principally relating to reporting and notification.

An important concern for BVCA member firms is the AIFMD marketing rules, which govern fundraising from investors across Europe. Our Policy Team’s key priorities in this area include the following:
 

EU marketing passport

Full-scope EU AIFMs (usually larger firms with over €500 AUM) have access to an internal, EU (in reality EEA) Single Market passport, which allows them to market EU AIFs in other Member States without lengthy further authorisation from the relevant national regulator(s).

The European Commission has previously considered whether to extend the passport to non-EU AIFMs/AIFs (such as UK or Channel Islands-based managers) following positive advice on certain non-EU jurisdictions from ESMA. However, the extension of the passport to AIFMs based in third countries is currently not a political priority and is unlikely to happen in the medium term.

The BVCA does not support an extension of the Single Market passport, as currently designed, to third country managers, including UK firms. This is because the current formulation of the rules would pose serious challenges for UK firms wishing to fundraise in the EU and could also lead to the abolition of national private placement regimes.
 

Marketing via national private placement regimes

Non-EU and sub-threshold AIFMs can market to EU investors via EU Member States’ National Private Placement Regimes (NPPRs). The EU may seek to phase out NPPRs if and when the AIFMD passport becomes available to third country firms. Whilst NPPRs are not available in all Member States, the BVCA supports their continued existence as a workable means for third country AIFMs to access EU investors.
 

AIFMD marketing since the Cross-Border Distribution of Funds (CBDF) legislation

Firms intending to market to EU investors under the passport or NPPRs should be mindful of the changes introduced by the EU’s Cross-Border Distribution of Funds (CBDF) legislation that updated the AIFMD marketing rules for EU AIFMs, in principle from August 2021 (although many Member States missed the deadline for national implementation).

Whilst principally intended to improve the functioning of the internal EU marketing passport, CBDF also affects AIFMs outside the bloc, like those based in the UK. This is because individual Member States have tended also to apply the CBDF rules to non-EU AIFMs that market or ‘pre-market’ to national investors under their NPPRs, albeit different countries’ approaches have varied.

The BVCA has been heavily involved in the development of CBDF since its inception, working closely with Invest Europe, which has now produced a useful guide to the key issues and status of national implementation (available here).
 

The European Commission’s review of AIFMD

The European Commission opened a review of the broader AIFMD framework in 2017 and published a legislative proposal for amendments to the ‘level 1’ framework in November 2021. Following extensive preparation and industry feedback, including via a public consultation in Q4 2020, the Commission broadly followed the key recommendation of the BVCA, Invest Europe and other industry bodies. This was not to make extensive changes to the current rules.

However, the Commission has proposed changes to a limited number of areas to the existing framework, including its rules on delegation, which are important for our industry. It has also proposed new rules for loan funds. The BVCA will remain closely engaged on this topic as it develops through 2022 and beyond (the proposals are expected to be finalised by early 2023 and should come into force in 2024/25).