AIFM Directive Restricts Alternative Investment Fund Marketing in the EU

In 2009, the European Commission introduced its Directive (the “Directive”) on Alternative Investment Fund Managers (“AIFM”), which would regulate investment funds within the European Union (“EU”).  Although the Directive was introduced in 2009, it still has not passed, due in large part to disagreement over its restrictions on the ability of non-EU AIFMs to market their funds in the EU.  This week, the Belgian presidency of the EU announced a proposal[1] which would permit non-EU domiciled AIFMs to market their funds in one of two ways.  The first option is for the non-EU AIFM to obtain a “passport” from one of the EU states which would allow the AIFM to market its funds in the EU.  However, even with a passport, a non-EU AIFM would still have to comply with an extensive list of requirements.  The second option is for the non-EU AIFM to market its funds by complying with each EU state’s private placement rules.  Under the second option, the non-EU AIFM would have to comply with private placement rules for each of the different states in which it intends to market its funds.  Proponents of the Directive believe that it will create cohesive regulation and increased transparency among AIFMs in EU states.  Opponents of the Directive, including U.S. Treasury Secretary Timothy Geithner, argue that it is protectionist and potentially damaging to cross-border investment, since it creates extensive hurdles preventing non-EU AIFMs the ability to market funds in the EU.

[1] Proposal for a Directive of the European Parliament and of the Council on Alternative Investment Fund Managers and Amending Directives 2003/41/EC and 2009/65/EC (Revised Compromise Proposal 2010), available at


  1. Helpful article. Seems to me that the second option makes the EU virtually pointless. If you have to follow the private placement rules of each individual state anyway, then the overarching entity is meaningless. In any event, it would be interesting to know what level of regulation foreign fund managers are subject to in the United States.

  2. I must admit I was shocked and disturbed to hear the EU was promulgating such a discriminatory procedure. All non-EU AIFMs would be specifically targeted, left to navigate a maze of 27 nations’ different private placement rules in order to simply market funds in the EU. I suppose Geithner had a similar take on the situation, though now probably appeased by the “passport” system (Ben Moshinsky, European Finance Ministers Agree on Rules for Hedge-Funds, Private Equity, Bloomberg, Oct. 19, 2010, available at At first glance, the passport system seems to alleviate all problems for non-EU AIFMs. With the passport system, non-EU AIFMs only need to be authorized in one EU territory to be operational in all 27. What’s the catch? How difficult will it actually be for a non-EU AIFM to become authorized in the first place? What will be the insurance consequences for AIFMs after implementing these new, cumbersome regulations? The goal of preventing another global economic crisis is a noble one, but were AIFMs to blame in the first place? Will these regulations actually meet that goal? Though these questions are still unanswered for me, I must breathe a sigh of relief that the passport system has been agreed upon.

  3. Considering that global economic growth is tepid, the prospect of the AIFM directive passing is disheartening. With U.S. GDP growth at 1.7% in the last quarter, and U.K. growth at 1.2%, why take the risk of any type of trade barrier? Hedge funds provide the unique opportunity to use the investments of the wealthy to grow the economy. As such, Secretary Geithner is correct to say that this is the wrong measure at the wrong time. In addition, the added layers of regulations are flat out scary. The prospect of complying with each EU state’s placement rules would be daunting. U.S. funds would be kept out of Europe, preventing us from entering a key market, at a time when the taking down of barriers is needed.

  4. It’s tough to blame the EU for wanting to protect itself from the American-style, weakly-regulated, Cowboy-capitalism that dragged their economy into the ditch alongside ours. The financial crisis taught the world the painful lesson that letting individuals pursue their own short-term, financial self interests unchecked (as advocated by free market fundamentalists) can be catastrophically detrimental to society’s collective interests (yes Glenn Beck-ers, collective interests do exist and are important). Accordingly, we need stronger rules to ensure that the global economy is not thrown under a bus for the benefit of a few financial institutions and their employees. This directive (along with London’s Bank Tax) are examples that the EU gets this point while America remains in the dark. At first glance (and knowing relatively little about this directive aside from this post), I applaud the EU for setting stricter rules and forcing American hedge funds to play by them. After all, if a guest at your party breaks your tv, your lamps, and a few windows, you can’t be blamed for eyeing him cautiously the next time he comes over.

  5. This is very interesting and I look forward to seeing how this all plays out in reality. There are a lot of implications here for the EU and the global community (certainly for the U.S. but also for Asian-based managers, among others). It looks like there have been some developments over the last few days. I would be interested to hear the author’s views on those.

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