A guide for Private Equity & Venture Capital funds
AIFMD came into effect in Ireland on 22 July 2013, and was introduced by the European Commission partly in response to the 2008 financial crisis, but also in response to a number of financial scandals - not least the Bernie Madoff scandal in the United States.
Investor confidence had understandably been hit by the crash and the scandals, and the Commission felt the need to introduce additional regulation to restore confidence among both professional and retail investors. The directive is aimed at reducing the risk posed by Alternative Investment Funds (“AIF” or the “fund”) to the very stability of the EU financial system and to bolster investor confidence. At this stage it is worth emphasising that the directive primarily regulates fund managers - not the fund itself, although there are knock-on implications for the funds.
The directive introduces a new uniform set of rules for all managers of AIFs including PE and VC funds, which to a large degree had previously gone unregulated in a number of EU countries. Against that background of virtual nonregulation, it’s no surprise that the directive has presented the alternative funds industry Europe-wide with a number of new challenges.
Under the terms of the directive, fund managers - whether they are based in the EU or not - who manage and market AIFs in the EU - must be authorised by an EU regulator, and in the case of Ireland that regulator is the Central Bank of Ireland.
The rules in the directive on operational, organisational, reporting and capital requirements are far more onerous that anything included in the MiFiD or UCITS directives.
Private equity and venture capital fund managers, as a result, now have to operate within a system where there are a whole set of new requirements in relation to depositaries, independent valuations and remuneration, and that presents a whole new range of challenges.