Fri, Jul 18, 2014

AIFMD: What firms need to be aware of post 22 July 2014

July 22 marks the end of the AIFMD transitional period for prospective AIFMs; this is when the requirements of the directive kick-in for all Full Scope Authorized AIFMs.

In the run-up to this date, firms have been ensuring that they have their depositary agreements in place; have made required changes to their prospectuses in terms of investor disclosures and have implemented AIFMD-compliant policies and procedures-particularly in relation to valuation, risk, leverage and liquidity.

But what other requirements should UK AIFMs be aware of after this date? Below are factors for firms to consider.

UK AIFMs that manage EEA AIFs and wish to market these AIFs in the EEA should have submitted marketing passport applications to the FCA for the EEA countries where they wish to market post-22 July.  Regulators in a number of these countries will charge fees (both one-off and on-going) for passporting into their countries, so firms should only apply for the countries in which they definitely intend to market.  As part of this application, the FCA will expect firms to provide documents, such as the instrument of incorporation of the AIF and the prospectus or private placement memorandum.

UK AIFMs managing non-EEA AIFs and wishing to market such AIFs in the EEA can only apply to market these under National Private Placement Regimes; in the UK, this involves submitting an Article 36 notification to the FCA and each country will have an equivalent application process that should be completed ahead of marketing in that country.  Again, a number of countries are charging fees in relation to the notifications under their National Private Placement Regimes.

It should be noted that firms that are not authorized by the FCA as Full Scope AIFMs, or that have not got the correct passports, cannot actively market outside of the UK subsequent to 22 July.

Annex IV Report

UK AIFMs will need to report to the FCA on each AIF they manage or market in the EEA.The first report will be due for the first full quarter following authorization. So, for example, a firm authorized on 22 July 2014 will report at the end of the fourth quarter of 2014.

At this stage firms should be determining the following:

  • the period for which their first report will be due;
  • their subsequent reporting frequency; and
  • the information they need to collate for both the AIFM and the AIFs they manage/market, including identifying the sources of information.

Annual AIF Report
UK AIFMs will need to make an annual audited report available to the FCA and investors for each AIF they manage or market in the EEA within six months of the end of their financial year.

Disclosure to Investors
When firms submitted their AIFMD Variation of Permission (VOP) applications, they completed a FUND 3.2.2R checklist for any AIFs they will manage or market in the EEA-this details how the firm will disclose certain information to investors (as required by AIFMD).  Prior to 22 July, firms should have updated their prospectuses (or other documents, where applicable) to include the pre-investment investor disclosure requirements and these updated documents should be provided to potential investors going forward.  Subsequent to 22 July, for each AIF managed or marketed in the EEA, the AIFM will need to make regular (at least annual) disclosures to investors regarding:

  • latest NAV;
  • percentage of assets subject to special arrangements due to their illiquid nature;
  • any new arrangements for managing liquidity;
  • risk profile; and
  • where leverage is employed, the total amount of leverage employed and any changes to the maximum level of leverage the AIFM may employ on the AIF’s behalf.

UK AIFMs should apply the AIFM Remuneration Code to new awards of variable remuneration for the performance period following that in which they become authorized. So, for example, if the firm’s performance period is 1 January to 31 December and the firm is authorized on 22 July 2014, the first full performance period will be 1 January 2015 to 31 December 2015.

However, firms must have in place their AIFMD-compliant Remuneration Policy as at 22 July 2014-even though it may not be applicable to the current performance period.  Information on total remuneration of “identified staff” and, where applicable, carried interest paid by the AIF, should be disclosed as part of the AIF annual report.

EMIR Reporting
Once authorized as an AIFM, a firm that trades OTC and/or exchange-traded derivatives will become subject to EMIR reporting requirements and should have appropriate arrangements in place in order to make the necessary reports.

How can Kinetic Partners help?
Kinetic Partners has assisted a number of investment managers to apply to the FCA to become UK AIFMs and to implement AIFMD-compliant policies and procedures. Should you have any questions on next steps under AIFMD, please get in touch with your usual Kinetic Partners contact.

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