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Funds
Alternative Investment Funds
By Nicola Smith, CEO of Helvetic Fund Administration Limited, which is part of the HFFT Group
With the ever pressing drive towards transparency in today’s financial services industry, investment managers are increasingly looking to Europe for onshore structures to satisfy investors’ appetite for alternative collective investments. Any marketing of Alternative Investment Funds (AIFs) in the European Union will now have to comply with the Alternative Investment Fund Manager Directive (the “Directive”). The Directive adds considerable administrative burdens on the manager and caused most managers to
pause for thought as to how they could deal with their obligations under the Directive. This article is intended to highlight the main considerations when deciding whether a manager should seek to obtain their own Alternative Investment Fund Manager (AIFM) licence or outsource some or all of the functions or join a management company which offers an existing AIFM platform (the “outsourced AIFM”) in order to remain compliant with the Directive.
AIFM licence
As in every business decision, finding a balance is the key to the optimal solution for each manager’s situation and this often boils down to questions of cost and investor approval. It’s a significant responsibility to manage the corporate governance of an AIFM and one that must have suitable substance behind it to keep the manager and the funds it manages compliant.
For those wanting to retain control of
their management company and looking to make their own application for an AIFM licence, resources will be one of the first influences affecting their decision.
A company seeking its own AIFM licence will need to appoint a board of directors / team which satisfies the local regulator that there is sufficient experience and expertise on the team to cover all the relevant functions set out in the Directive. These include compliance, risk and portfolio management (which must be dealt with independently under the Directive). If more than one investment strategy is used then the AIFM will need to demonstrate that it has the relevant applicable experience within the organisation to oversee and manage all those strategies – which may require additional staff and the inherent difficulties this involves.
Detailed policies specifically tailored to the AIFs, being managed by the AIFM, on risk and liquidity management, remuneration, valuation, reporting, conflict of interest and
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