Quick guide AIFMD reverse enquiry

Please note that this Quick Guide assumes that one of your potential investors is asking the questions set out below.

1. What is the AIFMD

The Alternative Investment Fund Managers Directive (“AIFMD”) is a European Union (“EU”) legislative measure which, in brief, intends to regulate (i) managers of Alternative Investment Funds (“AIFs”) and (ii) how AIFs are marketed/distributed to professional investors throughout the European Economic Area (“EEA”).

2. What is an AIF?

An AIF is any collective investment undertaking whether open-ended or closed-ended (wherever it may be domiciled) which: (i) raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for the benefit of those investors; and (ii) is not a UCITS fund.

An AIF includes:

• hedge funds/funds of hedge funds;
• private equity funds;
• listed closed-ended funds;
• real estate funds;
• infrastructure funds;
• commodity funds;
• long only funds which are not UCITS funds;
• non UCITS retail funds; and
• feeder funds and master funds in a master feeder structure,

but excludes:

• single investor funds (subject to certain requirements);
• managed accounts (so long as the client is not an AIF);
• family offices which do not raise external capital; and
• securitisation special purpose vehicles.

3. When did the AIFMD come into force?

The AIFMD, as an EU Directive, was required to be implemented by member states by 22 July 2013. There were, however, so called transitional provisions which allowed for member states to implement a one-year transitional period - this meant that in some member states, like the UK, in some circumstances, the AIFMD (or rather parts of it) did not have to be complied with until 22 July 2014. Also, a few member states are late in implementing the AIFMD.

4. Does the AIFMD prevent a manager or other service provider from marketing an AIF to me?

This will depend on a number of factors. In brief - if a manager decides to go through a local notification or registration process in respect of an AIF in your jurisdiction, then that AIF can be marketed to you. If the manager has not notified or registered the AIF, then it cannot be actively marketed there.

5. Does the AIFMD prevent me from investing in an AIF?

No. the AIFMD expressly states that it does not affect the pre-AIFMD situation whereby a professional investor established in the EEA may invest in AIFs on its own initiative, irrespective of where the Alternative Investment Fund Manager or the AIF is established.

6. Who is a professional investor?

A professional investor is anyone falling within the definition of Professional Client under the Markets in Financial Instruments Directive. The definition covers most types of institutional investor.

7. What does investing in AIFs on ‘its own initiative’ mean?

The ‘own initiative test’ (or ‘reverse enquiry’ as it is also known) means that as long as the initial initiative to invest (and, as part of that process, each initiative to make a request for information or documentation) was taken by the investor rather than the manager (or someone acting on behalf of the manager), the manager can accept the investment (or, as part of that process, the request for information or documentation) from the investor. For example, where the relevant investor has contacted the manager (or someone acting on behalf of the manager) and requested information about the AIF without first having been approached by the manager (or by someone acting on behalf of the manager), the manager is able to provide the requested information, which may subsequently lead to an investment.

8. Is there a common definition of ‘own initiative test’ or ‘reverse enquiry’ in the EEA?

No, unhelpfully, the position as to what is meant by the ‘own initiative test’ or ‘reverse enquiry’ is different across the EEA. However, there are commonalities and, as a general rule, the more specific the investor’s request is as to the AIF and the documents or information the more likely it is that a manager (or someone acting on behalf of the manager) can accept the request.

9. So unless I make a specific request, I may not get the same access to information as before the AIFMD came into force?

Correct. On the basis of the above restrictions, there are a number of managers that will now only deal with investors established in the EEA on a “reverse enquiry” basis. In particular, the internal policy of the relevant manager may mean that it is only permitted to send documents or information to you about its AIFs, upon receipt of a specific request from you naming the relevant AIF and specifying the type of document or information you wish to receive.

10. What practical steps could I take in order to ensure that my request is specific?

The following steps should be taken:

• Make a written request – i.e. contact the manager in writing;

• Be as precise as you can as to the AIFs in which you are interested (ideally you should name each AIF in relation to which you would like to receive information); and

• Set out the information or documentation you would like to receive in respect of the manager and each AIF. For example, specify that you would like to see:

  • In respect of the manager:
  • due diligence questionnaire;
  • risk reports;
    • investor presentation, including information about the various investment strategies that the manager pursues;
    • summary details of the AIFs that pursue those strategies (names, jurisdictions, fees/liquidity terms); and
    • past and, on an on-going basis, any future investor newsletters and/or fund fact sheets prepared by the manager that relate to the AIF[s].

• In respect of the AIF[s]:

  • offering memorandum or prospectus;
  • subscription agreement or application form; and
  • annual and any interim accounts prepared by the AIF[s]

• Expressly state that (i) you are a professional investor; (ii) you are initiating contact with the manager; and (iii) your contact with the manager has not been requested or solicited in any way by the manager or any person acting on the manager’s behalf. You may find the following example useful when considering how to phrase such a statement:

We confirm that we are a professional investor and that by sending this [letter]/[email] we are initiating contact with the Manager.

IMPORTANT NOTE: each jurisdiction in the EEA may interpret the scope of “reverse enquiry” and “marketing” differently (as those concepts are not clearly defined within the AIFMD). Additionally, investors from certain jurisdictions may find that some managers may have specific requirements that they require the investor to satisfy before they are prepared to provide information to them.