What are AIFM solutions and why are they used?
1st October 2018 2994 - Blog Posts
Since the AIFMD directive came into force in 2013, investment and fund managers have faced a hefty compliance burden to become authorised and access EU investors. For many small and medium-sized firms who don’t have the resources to sustain a huge back office operation, the regulations can seem onerous, burdensome and complex. The alternative is to explore AIFM solutions, where a third party “hosts” the fund through their regulated AIFM. In this blog we explain what AIFM solutions are and why they could be the best option for many firms.
What is AIFMD?
AIFMD or the Alternative Investment Fund Managers Directive is a regulatory framework for alternative investment fund managers (AIFMs), including managers of hedge funds, private equity firms and investment trusts. Some of the key requirements of AIFMD include authorisation of the fund manager and control over delegation of tasks, such as separating portfolio management and risk management.
What are AIFM solutions?
Some parts of the AIFMD directive require a costly and complex regulatory infrastructure. That’s why many funds are turning to third-party AIFM solutions, whereby an AIFM platform will host the fund.
What are the benefits of using an AIFM solution?
As well as providing a way of easing the compliance burden and ensuring that all aspects of AIFMD are met, third party AIFM solutions can provide guidance on the most appropriate fund structure. It also harnesses extensive regulatory expertise that may not exist in-house for many fund managers.
Risk management and distribution support
One of the main functions of the AIFM under AIFMD is risk management, and specifically the separation of the risk management and portfolio management functions. An appointed AIFM will manage risk efficiently and effectively without interfering unduly with a fund manager’s risk processes and procedures, which can often be a concern. Similarly, some managers may want support with distribution activities when launching their fund into Europe, while many may not, and a hosted AIFM can usually offer both active and passive distribution.
Using a hosted AIFM as a stepping stone
Some fund managers may choose to use a hosted AIFM to test the market before committing the expense and resources needed to develop their own fully-fledged AIFM presence. A third-party solution provides the quickest route to market and a fast way of establishing the required levels of transparency and regulatory compliance. Lawson Conner have onboarded numerous clients, while simultaneously helping them become their own AIFM so that six or seven months later they have become fully authorised in their own right.
Lawson Conner’s ‘plug and play’ solution
Fund managers can leverage FCA license (of Sapia and G10) and act as appointed representatives knowing that the operational and regulatory infrastructure is in place to support the fund and its investors. For example, G10 acts as AIFM to the Discovery Investment Manager Platform, which is a Cayman based SPC structure. This platform is an all-encompassing solution which negates the necessity to select an AIFM and undertake some of the costs of launching a fund such as appointed independent directors, selecting main service providers and can also considerably save time required to launch.
Lawson Conner, Sapia and G10 are global compliance experts who have helped clients all over the globe to navigate through the complexities of an ever-changing regulatory landscape. – To find out more about the Discovery platform or other AIFM solutions, please get in touch.
Lawson Conner is a trading name. Lawson Conner Group is comprised of Lawson Conner Services Limited, G10 Capital Limited (“G10”) and Sapia Partners LLP (“Sapia”). Regulated services are provided by G10 or Sapia which are authorised and regulated by the Financial Conduct Authority of the United Kingdom. Lawson Conner Services is a compliance services firm providing non-regulated services.