For most European fund managers the Alternative Investment Fund Managers
Directive (AIFMD) has not been as bad as it could have been – thanks, largely,
to positive engagement by the industry with national and European policy
makers. Although adjusting to the Directive has been a big compliance
headache, and some important issues still remain unresolved, the new regime is
now operating tolerably well in most member states. And, for those who have been
through the pain of authorisation, the consolation has been the promise of a
pan-European marketing passport: the Directive says that once a fund is AIFMD
compliant and approved by its "home-state" regulator, it can be marketed to
"professional investors" in any of the 31 countries in the European Economic
Area. Venture capital fund managers who qualify for the "EuVECA" regime
were promised a similar benefit in exchange for lighter touch regulation.
In practice, however, this promise has not been met – at least, not fully.
Fund managers across Europe have found themselves subject to requests from a
number of "host" regulators (the regulators in the countries in which it wants
to market) for additional fees and more documentation, and France has even been asking managers to appoint a local paying agent. Many have paid
up, and navigated the less than straightforward bureaucracy that has arrived
with the fee demands. And although the European Private Equity and Venture
Capital Association (EVCA) has objected, arguing that these requests are
contrary to EU law, so far there is no word on whether its complaint will be
upheld. This is perhaps surprising given that one of the aims of both the AIFMD
and EuVECA was to make it possible to market compliant alternative funds freely
across the EU, and the Commission has recently launched a consultation on a Capital Markets Union which seeks to further dismantle barriers to investment.
The approach of some member states to the passport certainly seems to undermine
Given the terms of the EU rules which now apply to cross-border fund
marketing, managers receiving fee demands from host regulators may wish to ask
some questions about the basis on which they are being charged. They
might, for example, ask about the supervisory purpose or function for which a
fee is being charged, pointing to their apparent right to market immediately
according to the rules that apply. Host regulators could be reminded that fees
charged to managers must be strictly necessary in order to achieve legitimate
supervisory goals, and it is fair to ask, therefore, what supervision is being
done outside the home state.
Individual member states may not appreciate the market impact these fees
could have. While not excessive in isolation, for a manager marketing several
parallel or successor partnerships in multiple jurisdictions, the costs of
compliance will soon start to add up. That might make managers think twice about
marketing in a state where it has only one or two target investors, which could
result in fewer attractive investment opportunities for some European investors.
If that is happening, it will be important to point it out to the Commission,
and the industry should also applaud regulators which are not imposing these
additional burdens – including, for example, the UK's FCA.
Further information on these issues is available to EVCA members on the EVCA website.