The AIFM Directive Is Beginning To Take Shape - ESMA Technical Advice Out For Feedback & Finalisation Of Proposed Implementing Measures

Background and timing of ESMA consultation process on the AIFM Directive

The new Directive on Alternative Investment Fund Managers ("AIFM Directive") entered into force on 21 July 2011, following its publication in the "Official Journal" of the European Union on 1st. of July. However, as the AIFM Directive only sets out the high-level framework for future rules for the management of alternative investment funds in the European Union, implementing measures are needed to flesh out the specific legal, technical and regulatory details of the new regime. On 13 July 2011 the European Securities and Markets Authority ("ESMA", formerly known as CESR) issued draft advice on implementing measures for the AIFM Directive and launched a consultation process. The draft advice, presented in the form of a "Consultation Paper", responds to a request of the European Commission for assistance addressed to CESR (i.e. the predecessor organisation of ESMA) end of last year. The substantial Consultation Paper (438 pages) addresses the following three areas singled out by the European Commission as substantial for the implementing of detailed technical aspects under the AIFM Directive:

General provisions including scope and exemptions, authorisation and operating conditions; Role of custodians; Transparency issues (such as annual reporting and disclosure to investors) and leverage (including methods for calculating the leverage and the exposure of the Alternative Investment Fund ("AIF"). The Consultation Paper does not address issues of scope in any detail, beyond a consideration of how the threshold for the value of assets should be calculated in order to exclude small AIFMs. In particular, there is no reference to joint venture arrangements. A further area concerning supervisory aspects under the AIFM directive, which was also raised by the European Commission, is not covered by this Consultation Paper. ESMA launched a separate consultation for these aspects on 23 August 2011 by issuing a new consultation paper covering any topics dealing with third countries in the AIFM Directive. These span from supervisory cooperation, marketing of non-EU AIFs, the delegation of certain functions to service providers outside the EU to the appointment of non-EU depositaries.

Definition of "Assets under Management" for exemption under Article 3 of AIFM Directive

For the calculation of the "assets under management" as mentioned in Article 3 of the AIFM Directive ESMA relates to the "total value of assets"-approach. ESMA states that it considers further methodologies, such as the calculation of acquisition cost of assets held. Moreover ESMA suggests that the calculation of the "total value of assets" should include assets acquired via leverage, that is using a gross method of calculating the exposure of the AIF including any borrowing. ESMA seems to refer to the leverage which exposes the AIF directly, any borrowing at the level of an intermediate or holding vehicle would therefore not be included for the purpose of calculating the "total value of as-sets". ESMA also proposes that the Alternative Investment Fund Manager ("AIFM") assesses all situations where the "total value of assets" would exceed the thresholds on an ongoing and lasting (not temporary) basis. In this respect ESMA specifies that the situation may be considered as temporary when it is likely to remain as such for a period longer than three months. ESMA suggests that the value of the AIF is to be monitored quarterly.

General Operating Conditions

Capital Requirements regarding additional own funds and insurance coverage

Article 9 of the...