Alt Investments

Guest Comment: Alternative Investment Firms - Should They Restructure As New Regulations Approach?

Rosalyn Breedy, Breedy Henderson Solicitors, 18 July 2013

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Managers of EU alternative investment funds, or non-EU alternative investment funds marketed into the EU, with AuMs above or near the €100 million mark, must lift their heads up from trying to comply with the detail of the Alternative Investment Fund Managers Directive.

Alternative
Investment Fund Management Groups - do you need to re-structure?

Managers
of EU alternative investment funds, or non-EU alternative
investment funds marketed into the EU, with assets under management above or
nearing the €100 million ($130.9 million) threshold need to lift their heads up from trying to
comply with the detail of the Alternative Investment Fund Managers Directive.
According to Rosalyn Breedy, of Breedy Henderson
Solicitors, some managers may need to step back from the small print and
consider whether they need to re-structure or even close down.

Managers of EU alternative investment
funds (AIFs), or of non-EU AIFs marketed into the EU, have faced an onslaught
of new regulation and legislation over the last three years. They have had to
consider whether they need to register with the SEC under The Dodd-Frank Wall
Street Reform and Consumer Protection Act 2010 which reduced the available
foreign advisor SEC registration exemptions. They have to review the
requirements under US Foreign Account and Tax Compliance Act and, if necessary,
implement a compliance programme. And, they need to keep an eye on the G8 focus
on fiscal recovery which is likely to affect taxation of their staff and
investors.

In keeping their heads down and
focusing on the detailed application of these changes, some managers may be
neglecting key strategic issues brought on by these changes in the post 2008
macro-environment.  Big picture issues
which may have been put to one side include issues such as retirement and
succession planning, re-structuring the group, change or at least re-evaluation
of current service providers, merger or other transformational changes.

As managers are well aware, for the
purposes of the AIFMD the key issue to resolve is which entity within the group
will be treated as the Alternative Investment Manager (AIFM).  This is the entity with the portfolio and
risk management responsibilities, which because of the application of the AIFMD
‘letterbox’ provisions may not be the offshore entity with those
responsibilities legally ascribed at present.

Managers looking to stay as a non-EU
AIFM may need to bulk up their offshore presence by moving people offshore.
They will need to review the associated impact on transfer pricing if group
activities are moved to low tax jurisdictions.

Non-EU AIFMs, and those who market
non-EU AIFs for them, need also to revisit their processes for marketing within
the EU. This is because, although the national private placement regime and
reverse solicitation rules will still apply until 2018, the application of
these regimes in some member states may be stricter. The directive has narrowed
the definition of the professional investor and their ability to elect as such.
This will affect those targeting family office investors. Notification with
individual EU member states may be also required. The non-EU AIFMs need to
ensure that the appropriate global supervisory co-operation agreement is in
place with the European Securities Markets Authority for the domicile of their
non-EU AIF.

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