Asian GPs raising capital from countries within the European Union can avoid a substantial chunk of the far-reaching regulations outlined in the Alternative Investment Fund Managers directive (AIFM) potentially until 2019, according to a panel of Luxembourg-based industry professionals at a seminar in Hong Kong.
The AIFM, brought in by European authorities to regulate alternative asset managers, enforces extensive regulations and reporting requirements on private equity firms operating in or marketing funds to the European Union – including Asian GPs with Europe-based investors.
However, Asia-based GPs could escape the bulk of the regulatory requirements for a number of years after the 22 July 2013 deadline, Jacques Elvinger, partner at Elvinger, Hoss & Prussen explained to Private Equity International.
AIFM permits approved alternative asset managers to market their funds to all 27 European Union members under a harmonised set of rules called a fund “passport”, abolishing the current private placement system under which funds market to EU members on a country-to-country basis.
However, the passport is unavailable to managers based outside the European Union until at least 2015, allowing funds to continue operating under existing national private placements, which have lighter-touch regulations.
Moreover, for Cayman Island- or ex-European Union-domiciled funds (which make up the bulk of Asian funds), it is possible to continue working under the regulatory scope of private placement regimes until 2018, after which there is also a possible year-long grandfathering period that could be offered.
We have this period until 2018 when it is possible to continue to sell funds where the manager is not yet authorised as an AIFM in the different member countries on the basis of these private placement rules. In that respect, that would mean [things] are very much unchanged
Jacques Elvinger, partner, Elvinger, Hoss & Prussen
“We have this period until 2018 when it is possible to continue to sell funds where the manager is not yet authorised as an AIFM in the different member countries on the basis of these private placement rules. In that respect, that would mean [things] are very much unchanged [for Asian managers] from the current situation,” Elvinger said.
He added that firms worldwide, including Asian managers, are not appropriately preparing for the implementation of the AIFM. “People have been very slow in getting prepared for the AIFM. To some extent it is fairly fortunate that there is a period from July 2013 to 2014, which is very much a grandfathering period when managers can take necessary actions to change [fund] structures or seek necessary authorisations. But generally managers are relatively slow in getting prepared.”
For Asian managers, this period to prepare could last up to seven years – possibly until 2019. However, Elvinger warns this could be country-dependent as EU members are allowed to stop offering private placements to foreign managers before the 2018 deadline.