Using a Parallel Fund Structure to Access the European AIFM Passport
Fund managers based outside of the European Union (EU) do not currently have access to an EU AIFM passport to market their funds to EU investors. One of the simplest routes to overcome this challenge can be the use of a Parallel Fund Structure set up and managed within the EU by an authorised third party Management Company acting as AIFM.
Using the services of an EU based AIFM to manage this structure can remove the need and associated costs of establishing an EU investment management platform. EU law requires an AIFM to have considerable substance since it must undertake both portfolio and risk management as separate functions. Delegation is limited to one of the functions and the capability must be retained to oversee any delegated function.
There are two alternative operating models available:
1. The fund manager appoints a third party AIFM which delegates portfolio management to the fund’s regulated fund management platform in, for example, the US or Hong Kong. This brings the platform within the EU’s regulatory reach, but without contaminating its current non-EU structures, which can be dedicated to non-EU investors
2. The third party AIFM provides both risk and portfolio management services appointing the fund manager to act in an advisory capacity to the fund. This ensures that the fund manager’s platform remains outside of the EU’s regulatory reach. In this model the Investment Committee is operated by the AIFM and will comprise suitably experienced members of the AIFM’s group together with third parties as specified in the fund prospectus. The AIFM will have a power of veto. The fund manager, acting in an investment advisory capacity will provide regular reporting to the AIFM together with Investment Committee papers as required.
Crestbridge has a third party AIFM in Luxembourg, Europe’s leading fund domicile with an established third party management company regime. In addition to extensive knowledge of the governance and regulatory requirements of regulated funds, Crestbridge directors have extensive industry experience qualifying them to sit on Investment Committees. Crestbridge can support a wide range of strategies, from PE/RE to plain vanilla and complex financial strategies.
In both options, an EU domiciled parallel fund is created alongside the existing Fund structures. The Initiator, acting as Portfolio Manager or Adviser (option 1 or 2) can keep control of the Board of the EU domiciled Fund, appointing its own Directors, in addition to one or two resident Directors. The AIFM, together with the Board of the Fund, appoints the Fund administrator and Depositary (tripartite agreements). As many of the main global administrators and depositaries are represented in Luxembourg, it is in principle possible to use the same service providers as in the current structure.
We will work closely with your legal advisors to:
- Provide the necessary information to prepare the regulatory filing and obtain approval to establish the fund
- Appoint the delegates as illustrated below which include:
- Fund administrator
- External valuer
- Provide the risk management function and oversight of delegation
- Liaise with the central administration and depositary functions to ensure day-to-day management of the fund
- Liaise with the regulator as necessary
- Provide AIFMD regulatory reporting
- Liaise with the legal advisors and regulators for marketing notification
- Generally be the main coordinator and point of contact throughout the EU
- Provide regular reporting to the Board of the Fund on the effective management of the structure, including risk management and monitoring of delegated activities
To learn more about how Crestbridge can help you access European investment capital with an AIFM passport, call Daniela Klasén-Martin on +352 26 215 420 or email firstname.lastname@example.org to arrange a telephone or video call.