ICLG The International Comparative Legal Guide to: Alternative Investment Funds 2016 4th Edition A practical cross-border insight into Alternative Investment Funds work Published by Global Legal Group, with contributions from: Adv. Gueorgui Gotzev Johnson Winter & Slattery Andreas M. Sofocleous & Co LLC König Rebholz Zechberger Attorneys at Law Babbé Advocates Lenz & Staehelin Bonn & Schmitt Maples and Calder Brodies LLP McCarthy Tétrault LLP Cadwalader, Wickersham & Taft LLP Mori Hamada & Matsumoto Camilleri Preziosi Advocates Skadden, Arps, Slate, Meagher & Flom LLP Cases & Lacambra and Affiliates Davis Polk & Wardwell LLP Taylors (in Association with Walkers) Dillon Eustace Travers Smith LLP Fieldfisher LLP Vieira de Almeida & Associados, Sociedade de Advogados, SP RL Goodwin Procter LLP WTS Tax Legal Consulting Horten Advokatpartnerselskab The International Comparative Legal Guide to: Alternative Investment Funds 2016 General Chapters: 1 Fundraising in 2016: An Evolving Landscape – Stephen G. Sims & Greg Norman, Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates 1 2 Allowing AIFMs to Decide How to Address New Market Challenges – Kirstene Baillie, Fieldfisher LLP 4 3 Private Equity Co-Investing: Emerging Trends and Regulatory Developments – Michael D. Saarinen, Contributing Editor Goodwin Procter LLP 9 Stephen G. Sims, Skadden, Arps, Slate, 4 The Global Subscription Credit Facility and Fund Finance Markets – Key Trends and Meagher & Flom LLP Forecasting 2016 – Michael C. Mascia & Wesley A. Misson, Cadwalader, Wickersham & Taft LLP 14 and Affiliates Sales Director 5 Allocating Fees and Expenses: The SEC Is Paying Close Attention – Yukako Kawata Florjan Osmani & Leor Landa, Davis Polk & Wardwell LLP 17 Account Directors 6 Bringing Foreign Investment Funds into Japan – Yasuzo Takeno & Fumiharu Hiromoto, Oliver Smith, Rory Smith Mori Hamada & Matsumoto 23 Sales Support Manager Toni Hayward Country Question and Answer Chapters: Sub Editor Nicholas Catlin 7 Andorra Cases & Lacambra: Miguel Cases 28 Senior Editor 8 Angola Vieira de Almeida & Associados, Sociedade de Advogados, SP RL: Rachel Williams Pedro Simões Coelho & Alexandre Norinho Oliveira 33 Chief Operating Officer Dror Levy 9 Australia Johnson Winter & Slattery: Shelley Hemmings & Andy Milidoni 39 Group Consulting Editor Alan Falach 10 Bermuda Taylors (in Association with Walkers): Jonathan Betts 48 Group Publisher 11 British Virgin Islands Maples and Calder: Tim Clipstone 56 Richard Firth 12 Bulgaria Adv. Gueorgui Gotzev: Gueorgui Gotzev & Céline Kohler 63 Published by Global Legal Group Ltd. 13 Canada McCarthy Tétrault LLP: Sean D. Sadler & Nigel P. J. Johnston 68 59 Tanner Street London SE1 3PL, UK 14 Cayman Islands Maples and Calder: Grant Dixon & Andrew Keast 75 Tel: +44 20 7367 0720 Fax: +44 20 7407 5255 15 Cyprus Andreas M. 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All rights reserved 22 Luxembourg Bonn & Schmitt: Alex Schmitt & Corinne Philippe 130 No photocopying 23 Malta Camilleri Preziosi Advocates: Louis de Gabriele & Andrew Caruana Scicluna 137 ISBN 978-1-910083-98-7 ISSN 2051-9613 24 Mozambique Vieira de Almeida & Associados, Sociedade de Advogados, SP RL: Strategic Partners Pedro Simões Coelho & Carlos Filipe Couto 145 25 Portugal Vieira de Almeida & Associados, Sociedade de Advogados, SP RL: Pedro Simões Coelho & Ricardo Seabra Moura 151 26 Scotland Brodies LLP: Andrew Akintewe & Karen Fountain 159 27 Spain Cases & Lacambra: Miguel Cases & Toni Barios 166 28 Switzerland Lenz & Staehelin: François Rayroux & Patrick Schleiffer 172 29 USA Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates: Heather Cruz & Anna Rips 179 Further copies of this book and others in the series can be ordered from the publisher. Please call +44 20 7367 0720 Disclaimer This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations. WWW.ICLG.CO.UK Chapter 2 Allowing AIFMs to Decide How to Address New Market Challenges Fieldfisher LLP Kirstene Baillie This year, in the third year of this publication, this keynote chapter ■ Depositary appointments will be slightly different from that for previous years. AIFMD A key protection required under AIFMD is that a depositary regulation has now settled down. Thankfully, it is time to move on to is to be appointed for an AIF. The severe liability provisions discuss how we make regulation work better, what the future should applying to a depositary, and the extent of its role, taken be for regulatory developments – and, perhaps most importantly, together with the limited range of types of firms which can leaving regulation aside, how product offerings should develop. provide the depositary service, may be adding unduly to costs of AIF vehicles – and costs of course are usually eventually Investment fund products should obviously evolve having regard to passed on to investors. the relevant regulation – in particular within Europe, having regard The range of depositary service providers has increased to how the UCITS/AIF divide might evolve, and whether some so competition between depositary service providers may specific types of fund vehicle will help meet particular challenges in increase over time, but arguably there is more work to do in the market place. We discuss below three particular areas which are this area. Are there excessive barriers to entry for depositaries? being considered in the context of the future for AIFMD regulation. We can think of several examples where, for interesting A key question though is whether the key challenges for those portfolio management products, the answer has been that operating in the alternative investment fund arena should be few, if any, depositaries will offer their services for certain decided more by the fund managers, than driven by the terms of structures which might potentially have been AIFs, and the their regulation. answer has been to restructure them so that they fall outside of the AIF definition. ■ Valuation arrangements The new certainties The valuation provisions offer a good example where the liability and cost issues have driven a particular response to Whether one agrees with all of its contents, one positive point in AIFMD. Unlike the depositary appointment scenario, there relation to AIFMD regulation is that at least we now have relative is a choice in relation to responsibility for valuation. certainty as to the shape of it. Before looking at the future for The consequence of the valuer liability provision in particular AIFMD regulation, it is worth considering whether it has settled has driven most AIFMs to structure arrangements, or restructure down in the right direction. arrangements, so that the AIFM assumes responsibility for Oddly, it is often easy to forget the point of regulation! The central valuation. Most firms providing the valuation function have purpose of regulation, in whatever sector, is generally to secure refused to accept the appointment as an external valuer, even when an external valuer would be the more logical position. that those who are regulated follow best practice. It should not be, we would submit, to push product providers into providing a Ironically, if the regulation had not been so severe, we may product in a certain way or to change the product. As the AIFMD have reached the more logical position – whereby the valuer would have accepted the external valuer appointment, and implementation phase has worked through, there have been some arguably provided independence on this topic – and so clear challenges for regulators seeking to ensure that AIFMD greater protection within the fund governance arrangements. regulation secures best practice from alternative investment fund ■ Compliance costs, and reporting managers and yet does not do so to such a prescriptive degree that it either constrains AIFMs from doing what they wish to do, or go so For AIFMs, the onerous requirements for compliance with far as to stop AIFMs offering the relevant AIF product which they AIFMD have presented their own challenges. One major headache is the reporting obligations under AIFMD. ideally wish to set up. It should be noted that these are in fact more onerous than in There is always a risk, particularly with some politically driven respect of UCITS. The UK FCA have indicated that it would initiative such as AIFMD, that new regulation drives behaviours like streamlined and developed reporting for UCITS in order which are not ideal, or workarounds for difficult provisions are to identify the possible build up