EVCA outlines stance on AIFMD third-country passports

The PE industry association raises its concerns in light of investor choice.

The European Private Equity and Venture Capital Association has set out its position on the introduction of marketing ‘passports’ to non-European funds under the Alternative Investment Fund Managers Directive (AIFMD) in a 11-page paper published on its website on 6 July.

The list of issues the industry body is asking the European Securities & Market Authority and the European Commission to consider comes just weeks in advance of the 22 July deadline for ESMA to issue its opinion on the topic.

EVCA noted in its paper “AIFMD – Introduction of a Third-Country Passport for non-EEA AIFMs/AIFs” that it supported an EU marketing passport for non-European funds, but its concern was to retain choice for European investors and competition.

EVCA said it understood that ESMA was analysing where European funds could market and was considering introducing passporting to non-European funds on a country-by-country basis. There was “no justification” to extend a passport based on ESMA’s determination that the regulatory regime in the non-European fund’s home jurisdiction was “equivalent” to the AIFMD or that its jurisdiction would provide reciprocal access to European funds, EVCA said.

The paper advocated the retention of national private placement regimes alongside any new passport regime during and beyond a three-year transitional period. Some funds were unlikely to be willing to be subject to the dual regulation required under AIFMD and national regimes, particularly if they were high-performing managers with oversubscribed funds, EVCA noted.

“We believe European institutional investors are sophisticated enough to differentiate between a fully AIFMD-compliant fund and one that is marketed under national private placement regimes,” EVCA said. “This is particularly important for smaller institutional investors, who are already finding that fewer non-EEA [European Economic Area] funds are being offered to them.”

EVCA raised its concern that an onerous regime would encourage non-European funds raising capital to look elsewhere. For European managers already authorised under the AIFMD and managing non-European alternative investment funds, passports “could, and should, be introduced without delay,” EVCA said.

Other issues EVCA identified that needed to be addressed ahead of any third country passport regime included the introduction of a transitional period to allow non-European funds already in market to close; a more certain approach to establishing a ‘member state of reference’ for non-European funds; ensuring that the requirement to appoint a legal representative did not mean that a non-European fund would have to establish its own presence in Europe to be authorised under AIFMD; for ESMA to state its view on which third countries have entered into OECD Model Tax Convention agreements with European countries required under AIFMD; and the potential that a strict application of AIFMD rules that differ from global norms, relating particularly to regulation and capital requirements, would discourage non-European managers.

The benefits of extending the passporting regime to non-European funds would be undermined unless ESMA and the European Commission address issues that have arisen for European funds, EVCA noted, such as fees charged by individual country regulators.

The AIFMD was launched in 2011 to regulate the management, administration and marketing of alternative investment funds outside of the UCITS regime. It was transposed into national law in mid-2013 and following a one-year transitional period, since mid-2014, European funds wishing to market in Europe must meet AIFMD requirements.