CDP: The Proposed EU Directive on the Regulation of Alternative Investment Fund Managers - Offshore Considerations for Onshore Managers

On 29 April 2009, the European Commission published a proposed EU Directive to regulate Alternative Investment Fund Managers located in EU Member States (“AIFM”). Despite what the name of the proposed directive might suggest, alternative investment funds (“AIFs”) will, as presently drafted, include all funds which are not regulated as UCITS. Hence, the proposed directive will apply to those who provide management services not only to hedge funds, private equity funds and other alternative investment funds, but also to managers of real estate funds, infrastructure funds and any other types of funds that are not within the UCITS Directive.

The proposed directive is targeted at EU based managers of AIFs rather than the funds themselves. Many AIFs are of course established in international financial centres such as the Cayman Islands, the British Virgin Islands and Bermuda and have managers who are EU based.

Described by AIMA as “hastily prepared and without consultation” and as containing many “ill-considered provisions”, and by the Party of European Socialists as having “more holes than a Swiss cheese” the draft legislation will clearly be the subject of extensive lobbying and revision before being adopted. Even if political consensus can be achieved in 2009, the proposed directive would not come into force until 2011.

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