On 18 May 2010, the ECOFIN committee of the European Council mandated for further negotiations on the AIFM Directive as initially issued by the European Commission in April 2009. The AIFM Directive will generally apply to fund managers of alternative investment funds (“AIF”), including private equity funds, real property funds and hedge funds (all fund managers not currently regulated under the UCITS Directive).

The agreement reached within ECOFIN means that the AIFM Directive will now be taken into the next stage of the EU legislative process, the 'trilogue' negotiations, with the aim to have the three EU institutions – Parliament, Council and Commission – to agree on a consolidated text that would be voted on by the European Parliament. The plenary vote in Parliament is scheduled to take place in July (this may be postponed until later in the year). If the AIFM Directive will be adopted this year, it is expected that it will enter into force as per 2012.

The AIFM Directive will have a large impact on almost all EU fund managers in terms of more compliance and more administration and, as a consequence, more costs. One of the key issues for the European private equity industry is the portfolio company disclosure obligation. The Council’s proposal includes for instance in circumstances that a controlling interest is acquired that managers must notify the relevant authorities and the investors of the AIF on – for instance – the level of debt in each portfolio company before and after the acquisition (and changes to it). Also, in case of controlling interests in portfolio companies, the Council proposed that certain information including the communication policy with employees and conflict of interests resolution are disclosed to the representatives of the employees of the portfolio company. There is likely to be an exemption for the disclosure obligation in respect of small or medium size portfolio companies, but it is yet uncertain what the qualifying employee threshold for an SME will be in the final consolidated proposal of the AIFM Directive. It is currently expected that the Directive will apply without grandfathering for existing AIF. The administrative burden could put private equity at a competitive disadvantage against other investors.

Another key issue is the Directive’s so called third country elements relating to the marketing of non EU funds in the EU and the marketing by non EU managers in the EU.

Many elements of the AIFM Directive need further elaboration (including the impact of the remuneration principles on carried interest and performance fees), and may be subject to further amendment during the triloque negotiations. Loyens & Loeff will closely follow the developments on the AIFM Directive both on a national level as well on European level. We will inform you in more detail shortly, and will keep you posted on developments until the scope and contents of the AIFM Directive and its consequences for your sector of the fund industry become clear.
If you have any questions on the AIFM Directive, please contact our AIFM task force at: AIFM-taskforce@loyensloeff.com, or:

Aleid Doodeheefver
Head of the Loyens & Loeff AIFM Task Force
aleid.doodeheefver@loyensloeff.com
+31 20 578 53 40