As a response to the financial crisis, the G-20 agreed on a closer regulatory oversight of the alternative financial sector. Whilst the US enacted the Dodd-Frank Act, the EU produced the Alternative Investment Fund Managers Directive (AIFMD).
The scope of AIFMD is large, applying to Alternative Investment Fund Managers (AIFM) in the EU, but also outside, if they manage or market their Alternative Investment Funds (AIF) within the EU. The only scenario which does not fall within the scope of the Directive is a Non-EU AIFM managing and/or marketing a Non-EU AIFM outside the EU given the absence of any relation with the EU. The Directive defines an AIF as: “An entity raising capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of such investors.” The Directive takes a “one-size fits all” approach by encompassing AIFM of most AIF which are not covered by the UCITS Directive. Non-UCITS regulated funds are therefore in principle subject to AIFMD and the Directive may also impact non-regulated investment vehicles, if they meet the AIF definition. As a large number of Shariah compliant funds invest into alternative asset classes such as private equity and real estate, AIFMD might have a direct impact on their manager’s investment activities.
For those falling into the scope of AIFMD, there is also the good news that AIFMD will eventually put an end to various private placement regimes and introduce a single regime with a EU-wide distribution passport, similar to the one for UCITS. In a first step this will only be available to EU AIFM.
In Luxembourg, Europe’s leading fund domicile, it is expected that the bill transposing the AIFMD will be voted before the end of the first quarter 2013. The European Commission also adopted on the 19th December 2012 the delegated regulation supplementing the AIFMD with regard to exemptions, general operating conditions, depositaries, leverage, transparency and supervision. Shariah compliant fund managers should carefully assess the impact of the AIFMD on their business model and analyze the opportunities of re-domiciling their funds from offshore jurisdictions to European domiciles, such as Luxembourg.
Bishr Shiblaq is the head of the Dubai representative office of Luxembourg law firm, Arendt & Medernach. He can be contacted at
[email protected]
.