Alternative Investment Fund Managers Directive (AIFMD)

What Is the Alternative Investment Fund Managers Directive (AIFMD)?

The Alternative Investment Fund Managers Directive (AIFMD) is a European Union (EU) regulation that applies to alternative investments, a considerable lot of which were passed on to a great extent unrestrained prior to the 2008-09 global financial crisis. The directive sets standards for marketing around raising private capital, remuneration policies, risk monitoring and reporting, as well as overall accountability.

The primary goal of the AIFMD is to safeguard investors as well as reduce a portion of the systemic risk that alternative investment funds can posture to the EU and its economy.

How the Alternative Investment Fund Managers Directive (AIFMD) Works

The global financial crisis was established in alternative investment vehicles, for example, subprime mortgages. After the global financial crisis hit, the EU took action to direct the alternative investment industry, especially hedge funds, real estate funds, and private equity. A considerable lot of these vehicles remained to a great extent unregulated on an excellent, global scale and were basically unrestrained in the EU.

Alternative investments, for example, private equity and hedge funds were to a great extent unregulated in the EU before the global financial crisis.

The AIFMD was carried out in the EU in 2013. Yet rather than pass regulation on the actual funds, the directive's aim is to control the fund managers.

Any manager that works a fund in the EU is subject to AIFMD regulation, whether or not it is set up inside or outside the union's borders. The institutional funds that fall under the AIFMD were beforehand outside of EU financial regulations for disclosure and transparency, remembering the Markets for Financial Instruments Directive (MIFID), which aimed to help transparency across the union's financial markets.

Core Objectives

The AIFMD has two major objectives.

As a matter of some importance, it looks to safeguard investors by introducing stricter compliance around how and what data is unveiled. This incorporates irreconcilable situations, liquidity profiles, and an independent valuation of assets. The directive points out that alternative investment funds are just planned for professional investors, albeit some member states can decide to make these funds accessible to retail investors as long as extra protects are applied at a national level.

The subsequent objective is to eliminate a portion of the systemic risks these funds can posture to the EU economy. To do this, the AIFMD commands that remuneration policies be structured in a way that doesn't empower exorbitant risk-taking, that financial leverage is reported to the European Systemic Risk Board (ERSB), and that the funds have robust risk management systems that consider liquidity.

Special Considerations

Compliance with AIFMD is required to get a visa to sell financial services across the EU market. As the EU is as yet perhaps of the most well off locale, hedge funds and private equity funds are investing in compliance departments even as they grumble about the burden and issue critical admonitions of competition enduring accordingly.

A portion of the requirements of the AIFMD include:

• Business conduct including recognizing [conflicts of interest](/irreconcilable circumstance), fairness toward investors, full and complete disclosure, risk management, and remuneration
• Least capital requirements including initial capital and total assets under management (AUM)
• Marketing efforts directed exclusively at investors inside the EU
• How investments are protected — through custodians and depositaries

Features

• The Alternative Investment Fund Managers Directive (AIFMD) is a regulatory structure that applies to EU-enlisted hedge funds, private equity funds, and real estate investment funds.
• The directive aims to safeguard investors as well as reduce a portion of the systemic risk that these types of funds can posture to the EU and its economy.
• The AIFMD was carried out to better manage alternative investments that were passed on to a great extent unrestrained prior to the 2008-09 global financial crisis.