In order to facilitate the distribution of a Luxembourg AIF the vehicle usually appoints a Luxembourg Host Alternative Investment Fund Manager (AIFM). A Host AIFM entitles the Luxembourg AIF to EU marketing passport. The Luxembourg AIF’s portfolio management is then typically delegated back by the AIFM to the USFM. As such, the USFM keeps control over the deal process, with limited involvement from the AIFM. 

The AIFMD imposes disclosure requirements on the AIFM with respect to the remuneration paid to its staff in connection with the management of the AIF. The AIFM must disclose:

  1. the total amount of remuneration for the financial year, split into fixed and variable remuneration, paid by the AIFM to its staff, beneficiaries, and, where relevant, carried interest paid by the AIF; and
  2. the aggregate amount of remuneration broken down by senior management and members of staff (“identified staff”) of the AIFM whose actions have a material impact on the risk profile of the AIF.

These disclosures are included in the annual report prepared by the AIFM for the AIF. The annual report is provided to the Luxembourg financial authority (the CSSF), as well as to investors, at least upon request and typically automatically in accordance with the terms of the partnership agreement. 

Where portfolio management of an AIF is delegated by the AIFM to the USFM, remuneration disclosures per limb (a) above would include the fixed and variable remuneration, including any carried interest, of the USFM’s (US based) staff responsible for portfolio management of the AIF. The disclosure on carried interest does not require a break down per staff member or a disclosure of the identified staff members. The disclosure under limb (b) above does not cascade up to the USFM.

USFM must be aware that AIFMs will require them to hand over the relevant financial information to accommodate accurate disclosures. These information rights are usually laid down in the delegation agreement between the AIFM and the USFM. If the USFM acts as an adviser to the AIFM - as opposed to a delegate - the remuneration disclosures do not cascade up to the USFM. 

The AIFM will also require the USFM to renumerate its identified staff, including particularly the carried interest holders, in line with the AIFMD’s remuneration rules, sometimes imposing to the USFM to formally adopt a remuneration policy. In substance however, we have not seen any pushback of AIFMs on remuneration packages used by USFMs.
   
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