FAQs on AIFMD for Hong Kong based managers

According to the definition, marketing is conducted "at the initiative of the AIFM or on behalf of the AIFM". Thus, reverse solicitation falls outside the scope of marketing under the AIFMD and can continue on or after 22 July 2013 where it is recognised and permitted by the local national law in the relevant EU Member State.

However, what is a reverse solicitation may be limited in practice. The onus will be on you to maintain records which clearly prove that the investment was not initiated by you.

4. Can I still rely on the private placement regime to market in the EU?

You will be able, until at least 2018, to continue marketing in an EU Member State under that EU Member State's private placement regime subject to compliance with certain AIFMD requirements. Key obligations will include:

• Annual reporting – Annual Reports must be furnished to the relevant regulators in the EU Member States and made available to investors no later than six months after the AIF's financial year end. Annual Reports must include disclosure on financial statements, fund activities, fund manager remuneration and any material changes to key operational, risk and management features of the AIF, and include any material changes throughout the year.
• Pre-investment disclosures to investor – Disclosures to include information on all fees and expenses borne by investors, descriptions of liquidity risk management, latest NAV and historical performance of the AIF, details of any preferential treatment provided to an investor, together with risk profile, valuation and management procedures.
• Ongoing disclosures to investors³ – Periodic disclosures to investors on the percentage of the AIF's assets which are subject to special arrangements arising from their illiquid nature (e.g. side pocket arrangements), any new liquidity management arrangements, the current risk profile of the AIF and the risk management systems employed to manage those risks.
• Pre- and post-investment reporting obligations to the regulator of the relevant Member State(s) – AIFMs must disclose certain information on liquidity and risk management arrangements, principal markets and instruments traded on behalf of the AIF, percentage of fund assets subject to special arrangements arising from their illiquid nature, arrangements for managing liquidity, the risk management systems employed, current risk profile of the AIF, and the results of stress tests performed in line with the AIFMD.

In July 2018, and on the advice of the European Securities and Markets Authority (ESMA), a determination will be made as to whether the private placement regime should be abolished. If it is abolished, the only way to access EU investors would be to become a fully-compliant AIFM.

Note that in order to take advantage of the private placement regime, there must be in place co-operation agreements between (a) the competent authorities in each EU Member State where the non-EU AIF is to be marketed; (b) the supervisory authority of the domicile of the non-EU AIF; and (c) the supervisory authority of the country where the non-EU AIFM is established. On 22 May 2013, ESMA approved Memoranda of Understanding (MoUs) on co-operation with 34 regulators, including Hong Kong's Securities and Futures Commission. While ESMA has negotiated the MoUs centrally, they are bilateral agreements that must be signed between each EU securities regulator and the non-EU authorities. The actual supervision of AIFMs lies with the national securities regulators, therefore each authority decides with which non-EU authorities it will sign an MoU.

5. What should I do next if I intend to market in the EU under the private placement regime after the implementation of the AIFMD?

You should consider taking the following steps if you intend to market your AIF in the EU after the implementation of the AIFMD:-

• Identify the EU Member States that you currently market or intend to market your AIF with a view of determining (i) whether you are still able to take advantage of their private placement regime; (ii) whether there are any changes to their private placement and other applicable securities regimes being introduced in conjunction with the AIFMD implementation; (iii) whether those EU Member States have entered into the necessary co-operation agreements; (iv) what you need to do to ensure that you can comply with their private placement regime requirements.
• Review your AIF private placement memorandum and annual report to ensure that they comply with the AIFMD transparency and disclosure requirements.
• Ensure proper systems, policies and procedures are in place in order for you to comply with on-going reporting obligations to the relevant EU competent authorities and on-going disclosure/reporting requirements to investors.

1 The Financial Conduct Authority (FCA) and the Treasury in the United Kingdom (UK) have recently announced that a transitional period of one year will be available to non-UK AIFMs seeking to market funds to UK investors. Therefore, in the UK at least, AIFMs have until 21 July 2014 to comply with the provisions of the AIFMD in relation to its marketing to UK residents.

2 "Marketing" is defined under the AIFMD as any direct or indirect offering or placement, at the initiative of the AIFM, or on behalf of the AIFM, of units or shares of an AIF which it manages to or with investors domiciled or with an registered office in the EU.

3 Note that most of this information will already be set out in the private placing memorandum that we prepared for our clients. However, it is imperative to undertake a review of your private placing memorandum to ensure compliance with the AIFMD requirements prior to any marketing trip to Europe.

Key Contacts

Su Cheen Chuah

Partner | Financial Services

Email or call +852 2825 9651