EU Finance Ministers are expected to agree, perhaps even without debate, to the French Presidency of the Council of the European Union’s compromise proposal on the revision of the ‘AIFM’ directive, governing alternative investment funds, on Friday 17 June in Luxembourg.
Last week, a qualified majority of Member States in favour of the text on the table was noted at the meeting of Member States’ ambassadors to the EU (Coreper), although some minor adjustments were suggested. Luxembourg having also made a specific request, the French Presidency is currently checking whether the qualified majority remains while taking into account the Luxembourg request.
Presented in November 2021 as part of a legislative package to strengthen the capital markets union (see EUROPE 12840/6, 12835/9), the legislative revision does not upset the balance of rules established in 2011 and which, in the opinion of EU legislators and stakeholders, are working well. It aims to harmonise the rules for the managers of ‘loan-originating funds’, to clarify standards applicable to managers who delegate their functions to third parties, to allow cross-border access to depositary services, and to facilitate the use of liquidity management tools (LMTs) in the EU.
The French compromise proposal takes up the European Commission’s suggestion that hedge funds, which only provide their services to professional investors, should be required to have at least two people working full time to combat ‘shell’ companies.
Alternative investment funds will have to retain 5% of the notional value of the loan contracts they originate and resell on the secondary markets. The French proposal introduces some exemptions where: (a) the AIF starts to sell assets in order to repay investors’ shares as part of its own liquidation, (b) the borrower or one of its shareholders is subject to EU sanctions or (c) the sale of the loan is necessary for the AIF not to be in breach of any of its investment or diversification rules.
In her draft report to be discussed on Tuesday in the European Parliament’s Committee on Economic and Monetary Affairs, Isabel Benjumea (EPP, Spain) removes the 5% loan retention requirement. She replaces this provision with a prohibition on AIFM managing hedge funds of which the investment strategy is to make loans with the sole purpose of selling them to third parties (‘make and sell’ strategy).
On the delegation of tasks, AIFMs will be required to inform national supervisors of the modalities of this approach, the amounts and percentage of assets concerned in relation to total assets under management, and the way in which they monitor the delegates, based on guidelines from the European Securities and Markets Authority (ESMA). The latter will have to report on the evolution of the practice of task delegation in the EU.
See the French Presidency’s compromise proposal: https://aeur.eu/f/22u
See the draft ‘Benjumea’ report: https://aeur.eu/f/234 (Original version in French by Mathieu Bion)