In brief 5 min read
The European Commission has finally published its report on AIFMD and, in doing so, has considered the impact of AIFMD on AIFMs, AIFs and investors.
The report is short, but gives some insight into how the key features of AIFMD have worked and the effect this has had on the market.
Following the publication of the report, it remains to be seen whether there will be an extension of the pan-European marketing passport to non-European fund managers and whether Australian wholesale fund managers will even qualify at the outset if the marketing passport is extended.
- The European Commission (the Commission) recently published its report on the Alternative Investment Fund Managers Directive (AIFMD) as required by Article 69 of AIFMD (the Report).
- The purpose of the Report is to review the impact of AIFMD on various stakeholders and deliver those findings to the European Parliament and Council. In doing so, the Report considers the impact on investors, Alternative Investment Funds and Alternative Investment Fund Managers (AIFMs) through an analysis of some of the key features of AIFMD such as the use of depositaries, the disclosure and transparency requirements, valuation principles and remuneration rules.
- Given many of these features are currently relevant only to European-based AIFMs, Australian wholesale fund managers will be keen to know whether the Report provides any insights on the introduction of a marketing passport for non-European managers or whether there will be changes to the national private placement regimes (NPPRs) or other exemptions (such as reverse solicitation or passive marketing) under which Australian managers currently operate when sourcing European capital.
- The Report is not particularly detailed and, as a result, the game of 'watch and wait' continues for non-European AIFMs. It is also worth noting that even if the passport is activated for non-European AIFMs (referred to as 'third country AIFMs'), it is possible that the recent overhaul of the Australian foreign financial service provider (FFSP) regime may impact Australian managers' prospects of having immediate access to it.
The Report does not discuss the prospect of allowing non-European fund AIFMs to avail themselves of the pan-European marketing passport (which would permit those managers to market fund interests to investors across Europe, but would require full compliance with AIFMD). On that basis, Australian AIFMs currently looking to access European capital from professional investors must continue to do so either via reverse solicitation exemptions in the applicable European jurisdictions (which are narrow in scope and, therefore, limited in their utility) or by complying with jurisdiction-specific NPPRs, noting that certain European jurisdictions such as Germany do not have an NPPR.
Even if there was to be movement on the extension of the pan-European marketing passport to non-European AIFMs, given recent changes to the Australian regime for FFSPs (as we reported on here), it is questionable whether that extension would apply to and benefit Australian fund managers. That's because of statements made by the European Securities and Markets Authority (ESMA) in mid-2016 that, in order for ESMA to positively recommend the extension of the passport to Australian AIFMs, Australia's sufficient equivalence relief (which has been repealed subject to a two-year grandfathering period) would need to be extended to AIFMs in all European jurisdictions. In many respects, the changes to the FFSP regime have moved us further away from satisfying ESMA that the passport should be extended to Australian managers.
What does the Report reveal about jurisdiction-specific gold-plating of AIFMD and the future of NPPRs?
One of the interesting quirks of European directives such as AIFMD is that they are not directly effective in each member state jurisdiction, which means each jurisdiction needs to pass its own national implementing legislation. As any fund manager which has sought to market fund interests to German investors (in particular) in the last seven years will know all too well, this has resulted in 'gold-plating' of AIFMD in certain jurisdictions, leading to divergences in national marketing rules and varying interpretations of AIFMD by national supervisors and, according to the Commission, limiting the scope and efficacy of the marketing passport.
The Report notes that the continuation of the NPPRs has brought its own challenges, putting compliant European AIFMs at a disadvantage given they have the expense and operational burden of full compliance with AIFMD. The Report contemplates two options to address these concerns – either harmonising the NPPRs, or extending the marketing passport to non-European managers and subsequently phasing out the NPPRs entirely.
Ultimately, the Report does not make any findings either way, but the reference to phasing out the NPPRs is likely to be viewed somewhat ominously by Australian managers (and, indeed, by wholesale investors from jurisdictions which currently have NPPRs).
As a result of the Report's findings, the Commission will put forward proposals, including amendments to AIFMD (if appropriate), but timing for this is unclear. Following ESMA's 2016 assessment, it was also with the Commission to assess whether the pan-European marketing passport should be extended to non-European AIFMs within three months or, alternatively, whether any extension should wait until ESMA delivers 'positive advice' on a 'sufficient' number of non-European countries.
Given we are now in 2020, it appears the latter route has been chosen and, for Australian wholesale fund managers, it remains very much a case of watching this space without any expectation of imminent movement.