Sound Business Advice: Bermuda-based fund managers impacted

The Alternative Investment Fund Managers Directive (‘AIFMD’) is an EU Directive that regulates the marketing of Alternative Investment Funds (‘AIFs’) to EU investors.   

Because ‘marketing activity’ is the regulated activity, the Directive has extra-territorial reach, and non-EU managers (obviously including those in Bermuda) wishing to market their AIFs to EU investors, fall within the scope of the Directive.

The Directive introduces a ‘passporting’ concept to the marketing of AIFs in the EU; however, this marketing passport is currently only available to EU managers.  

The original timetable indicated that passporting could be available to non-EU managers in 2015, but there is considerable uncertainty about whether that timeframe is achievable.  

In the meantime, options are limited for managers wishing to market in the EU.

Reverse solicitation

This is where a prospective investor approaches a manager without any effort having been made by the manager in that regard — i.e. the manager has not undertaken any related marketing activity. This option at first appears attractive to managers as a means of continuing to access the EU market. 

 In our experience, though, as managers explore this option the significant inherent risks of this strategy become apparent — essentially, inadvertently falling foul of marketing definitions, potentially leading to investor recourse and/or regulatory sanction, and the consequential reputational damage.

Private placement

This is an alternative means of accessing the EU market, but each jurisdiction has its own regime, which varies in requirements and flexibility.  

As a result, managers seeking to market in multiple jurisdictions are discovering that navigating multiple non-aligned regimes is a complicated process that can drive up costs and reduce efficiency.

Other managers are staying out of the EU, adopting a ‘wait and see’ approach in the hope for clarity around the prospect of passporting being extended to non-EU managers.

In the meantime, the Bermuda Monetary Authority (‘BMA’) together with industry, are working hard to further position Bermuda as an attractive jurisdiction for investment management and funds.  

The BMA’s recent press releases confirm that cooperation agreements have been signed with the majority of EU jurisdictions — these are required in order for Bermuda-based managers to be able to access each jurisdiction’s private placement regime. The BMA’s 2014 Business Plan outlines other significant initiatives relating to the AIFMD.  

These achievements and ongoing developments are to be commended, and serve to demonstrate Bermuda’s commitment to the asset management industry.

July 22, 2014, marks the end of the transitional year that was granted for managers to become compliant with the requirements of the AIFMD.  

Managers continuing to market or raise capital in the EU after this date would be well advised to ensure that they understand and comply with the various requirements of the AIFMD, which include registration/notification, investor disclosures and ongoing regulatory reporting.  Decisions made now could have significant implications for future strategic and operational considerations, so it is important that such decisions are well-informed. n

Ewan McGill is an audit director in the Investments & Banking group at KPMG in Bermuda and heads the firm’s AIFMD Advisory services. He leads the AIFMD sub-committee of the BBDA’s Asset Management group.