April 2009: European Commission proposed its draft AIFM
The first proposals of the Alternative Investment Fund Managers (AIFM) directive, unveiled in early 2009, were met with universal horror among the private equity industry. Reports described the current AIFM proposals as creating both a “fortress and a prison in the private equity world that would keep EU fund managers from operating outside the EU, and make it very difficult for non-EU firms to operate within the EU,” said Phil Jensen, chief financial officer, of San Francisco and New York-based investment firm Paul Capital at the time. Jensen and others said the directive was a big concern for firms like his that invest and service investors globally.
For PE Manager’s original coverage of the first draft of the directive, click here.
November 2010: AIFM adopted by the European Parliament
The European Private Equity and Venture Capital Association (EVCA) argued for “fairness and proportionality” after the European Parliament adopted the directive in the fall of 2010. The next step was for the European Commission to flesh out the directive’s core mandates under level II measures (which were not finalized until December 2012).
EVCA, Europe’s largest private equity lobbying group, stressed the new rules being considered should recognize the various fund structures used by private equity. And that rules should be “appropriately tailored to meet specific risks – rather than lumping us in the same basket as other AIFs (like hedge funds) that carry very different risks,” an EVCA spokesperson said at the time.
For PE Manager’s original coverage of the directive’s ascension in European Parliament, click here.
July 2011: Final versions of the AIFM directive become officially published
In the summer of 2011, final versions of the AIFM directive were published in the Official Journal on the European Union after being translated into 23 member state languages. Around that time, the European Securities and Markets Authority – the body responsible for providing European policymakers with technical advice on the directive – unveiled a number of new proposals that detailed the core provisions of the directive, finally agreed last December. The daunting 438 page consultation paper provided important clues in ESMA’s thinking of how regulators might supervise private funds. The key areas of focus for the industry were the classification and requirements of: remuneration, leverage, assets under management, risk management, capital requirements and depositories.
For PE Manager’s original coverage of the directive's level II provisions, click here.
July 22 2011: AIFM entered into force at EU level
In the summer of 2011, the directive entered into force at the EU-level, giving member states 24 months to transpose the directive into national law. EU sovereigns began consulting with the fund industry over draft legislation as part of efforts to implement the directive into national law. Popular fund domicile Luxembourg was quick off the draw and used the directive as a way to promote the jurisdiction. “We want to support an open market and not create a fortress,” said at the time Luxembourg’s Minister of Finance, Luc Frieden.
On the other end of the spectrum, Germany released a draft that was called a “jurisdiction killer” by one German-funds lawyer. Luckily for GPs in Germany, strong lobbying resulted in the law being toned down into something more palatable for the industry.
The end of the transposition period will bring with it the introduction of the EU-wide marketing passport for EU AIFMs managing EU AIFs.
Fund managers also received some welcome news just a few months before the directive’s July 22 deadline. A Q&A released by the European Commission detailed an opportunity for national securities regulators to give fund managers an extra year to comply with the directive. Many countries, including the UK, Luxembourg and Germany adopted what is known as the transitional period. Firms taking advantage of this extra year are able to continue marketing in other EU countries subject to the country’s individual private placement regime.
For PE Manager’s original coverage detailing the progress of individual member states in implementing the directive, click here.
October 2015: Date non-EU GPs can use a marketing passport
Non-EU fund managers will need to wait three years before they are given access to a pan-EU marketing passport provided to firms which meet the directive's requirements.
To satisfy the directive’s requirements, non-EU jurisdictions recently had cooperation agreements approved with ESMA. The agreement enables fund managers using these jurisdictions, including the US, Jersey and Guernsey, to continue fundraising in Europe through private placement rules until at least 2018 – the time when EU sovereigns may need to scrap their non-AIFM approved marketing routes.
Offshore domiciles such as Jersey and Guernsey have been busy creating multi-tier fund regimes to keep up with the directive. These give fund managers domiciled on the islands the option of continuing business as normal or complying with the full requirements of the directive.
For PE Manager’s original coverage of ESMA’s cooperation agreement approval, click here.