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AIFs Distribution and Passporting

AIFMD introduced a new passport regime, governing the marketing of AIFs to professional investors across Europe.

Ambition

AIFMD introduced a new passport regime, governing the marketing of AIFs to professional investors across Europe.

In the run-up to its implementation, the distribution passport was widely lauded as the ‘spoonful of sugar’ destined to help swallow the rather bitter pill of reporting and depositary requirements. 

This new passport aimed to emulate the unparalleled success of UCITS as a cross-border brand, an area in which Luxembourg has excelled as a cross-border fund domicile. Where UCITS + Luxembourg is a winning combination, AIFMD + Luxembourg promised the opportunity to deliver similar successes.

Harmonisation of requirements could bring more certainty and lower costs to AIFs

Cost

After initial optimism, it became apparent that the AIFMD fund distribution passport fell somewhat short of expectations. The application of a passport regime to AIFs highlighted some of the weaknesses inherent in the UCITS passporting framework.

The requirement to register funds in each country, to pay registration and ongoing maintenance fees, to appoint local agents and comply with local marketing rules are more easily borne by UCITS with wide distribution and significant assets under management.

As soon as this structure was applied to smaller, more specialised AIFs with a more select investor base, the costs associated with cross-border distribution became prohibitive. In addition, the AIFMD requirements were ‘gold-plated’ in certain markets, further raising the bar for AIFs.

What would be on top of your wish list for AIFMD II?

Survey of  120 professionals from the  Luxembourg  financial marketplace in November 2016.

All of this is set to change however, as the European Capital Markets Union action plan is assessing whether potential obstacles to cross-border distribution of investment funds continue to exist. Following a public consultation by the European Commission, it is anticipated that harmonisation of requirements could bring more certainty and lower costs to AIFs and UCITS alike. This should put fresh wind in the sails of AIF cross-border distribution across Europe and - if the success of UCITS can be emulated - then also beyond.

Di Elaine Kiggins Product Manager, Fund Distribution Services
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