Most people will agree that the introduction of the AIFMD has had a mixed effect on the ability to raise capital in the EU. Although large EU based managers can take advantage of the supposedly harmonized pan-European regulatory regime that the AIFMD creates, those with a non-EU base are currently locked out of the benefits that the AIFMD offers.
Whilst the AIFMD does introduce the benefits of the passport for EU managers of EU funds, for non-EU managers, the AIFMD actively discourages fundraising by non-EU managers from EU-based investors and this difficulty is reflected in the number of US managers who have simply abandoned the EU as an active fundraising market for the time being. Although ESMA is in the midst of a consultation on whether there is enough evidence to extend the current passport arrangements to non-EU managers, it is not yet clear when and how this will materialise, if at all. We wait to hear from ESMA. In the meantime, increased investor regulation, including Solvency II, Banking Structural Reform and the IORP Directive, is supplementing a growing pool of domestic legislation which seeks to restrict the ability of EU-based pension funds, insurance companies and banks to invest with non-AIFMD authorised managers.
In the light of this protectionist framework, the position of the CI has to be considered. Anecdotal evidence suggests that at present not a huge amount has changed. Managers continue to use CI-based structures availing themselves of national private placement regimes and/or reverse solicitation whenever possible to raise money from EU based investors. In fact, we have seen a slight upturn in interest so far. It seems unlikely that this position will last forever though; a number of Swedish promoters have already made the decision to launch EU-domiciled funds at the expense of their traditional CI-based structures and regulators are increasingly focussing on the fundraising process. We are also hearing many Continental promoters express a preference for Luxembourg as a jurisdiction of choice, as AIFMD-compliant structures can be established there and, now that the use of partnership structures is becoming established in Luxembourg, a gradual shift away from the CI may materialise.
Notwithstanding these points, however, Jersey and Guernsey remain strong structuring jurisdictions and over the last few months we have been working in conjunction with leading firms developing a ‘bright solution’ to the challenges that new EU legislation is creating for the CI. The idea behind the solution is to allow both EU and non-EU managers to be able to establish an AIFMD compliant fund structure that can be operated from the CI for affected investors alongside other, more efficient, funds that are better placed to accommodate international investors. The intention is that managers will be able to operate on and offshore structures simultaneously and by doing so, save significant costs and accommodate the entire investor-universe.
We believe that, notwithstanding the challenges presented by more recent EU legislation, and regardless of what happens with the third country passport, this ‘bright solution’ should create an attractive option for industry and for European-based investors to access some of the best funds. If you would like to know more, please feel free to contact me in the first instance.
If you would like to discuss outsourcing to the Aztec Group or are considering migrating a fund or SPV, please contact James Duffield, our Head of Business Development on +44 20 3818 0250.
Aztec Group Guernsey
Aztec Financial Services (Guernsey) Limited
PO Box 656, East Wing, Trafalgar Court
Les Banques, St Peter Port, Guernsey, GY1 3PP
Telephone: +44 1481 749700
Facsimile: +44 1481 749749
Video Conference: +44 1481 725947
Aztec Group Jersey
Aztec Financial Services (Jersey) Limited
Aztec Group House, PO Box 730
11-15 Seaton Place, St Helier, Jersey, JE4 0QH
Telephone: +44 1534 833000
Facsimile: +44 1534 833033
Video Conference: +44 1534 832002
Aztec Group UK - London
Aztec Financial Services (UK) Limited
2 Throgmorton Avenue
Telephone: +44 20 3818 0250
Aztec Group Luxembourg
Aztec Financial Services (Luxembourg) S.A.
7, Rue Lou Hemmer, L-1748, Luxembourg – Findel
Grand-Duché de Luxembourg
Telephone: +(352) 24 616 000
Facsimile: +(352) 24 616 016
Aztec Group The Netherlands
Aztec Financial Services (Netherlands) BV
Spaces Zuidas, Barbara Strozzilaan 201
1083 HN Amsterdam, The Netherlands
Telephone: +31 20 794 4820
Facsimile: +31 20 794 4821
Aztec Group UK - Southampton
Aztec Financial Services (UK) Limited
Forum 3, Solent Business Park
Parkway South, Whiteley, Fareham, PO15 7FH
Telephone: +44 238 202 2300
Facsimile: +44 238 202 2309