The Alternative Investment Fund Managers Regulations (UK AIFMD) provide a regulatory framework for alternative investment fund managers (AIFMs), including managers of hedge funds, private equity firms and investment trusts.
The scope of UK AIFMD is broad and, with a few exceptions, covers the management, administration and marketing of alternative investment funds (AIFs). Its focus is on regulating the UK AIFM rather than the AIF.
An AIF is a 'collective investment undertaking' that is not subject to the UK UCITS regime, and includes hedge funds, private equity funds, retail investment funds, investment companies and real estate funds, among others.
The UK AIFMD establishes a framework for monitoring and supervising risks posed by UK AIFMs and the AIFs they manage, and for strengthening the UK market in alternative funds. It also includes requirements for firms acting as a depositary for an AIF.
Aims of the UK AIFMD
- to prevent market instability and the build-up of systemic risk in the financial system
- to improve investor protection by imposing new depositary standards and enhanced transparency through new investor disclosure rules and mandatory reporting to competent authorities
Requirements included in the UK AIFMD
- the authorisation of the fund manager (full scope UK AIFM) or, alternatively, registration subject to a lighter regime for UK AIFMs managing AIFs with 'assets under management' below certain thresholds. Sub-threshold UK AIFMs have the right to opt-in to full authorisation
- conduct of business (fair treatment of investors, conflicts of interest, remuneration, risk management, valuation, disclosure to investors and regulators)
- regulatory capital – initial capital, 'own funds' and professional indemnity insurance requirements
- the safekeeping of investments (via the mandatory appointment of depositaries and custodians)
- controls over delegation of certain tasks, including portfolio management and risk management
- the use of leverage by UK AIFMs for all AIFs under management. The FCA has powers to intervene, placing restrictions on leverage and other supervisory restrictions where needed to avoid the build-up of systemic risk