Authorisation Exemptions

Authorisation exemptions

  • Intra-group exemption
  • De minimis exemption
Intra-group exemption

Article 3(1) of the Directive contains an exemption from authorisation for AIFMs in so far as they manage one or more AIFs whose only investors are (i) the AIFM, (ii) the parent undertakings of the AIFM, (iii) the subsidiaries of the AIFM, or (iv) other subsidiaries of those parent undertakings, provided that none of (i) – (iv) are themselves an AIF.

De minimis exemption

Article 3(2) of the Directive contains an exemption for managers of smaller funds (each, a “small AIFM”). The Directive will not apply to AIFMs whose assets under management (including assets acquired through the use of leverage) do not exceed: (i) €100m; or (ii) €500m, provided that the portfolio(s) under management were not leveraged and that investors had no redemption rights exercisable for a period of five years following the date of the initial investment in each AIF.

Articles 2 to 5 of the Level 2 Regulations provide further detail on how such assets under management should be calculated. Notably, in calculating the total assets under management, the AIFM must look to all AIFs for which the AIFM is appointed as the external AIFM or is the internal AIFM, and for each such AIF:

  • identify the portfolio of assets and determine in accordance with the valuation rules laid down in the law of the country where the AIF is established and, as the case may be, or in the AIF rules or instruments of incorporation the corresponding value of assets under management, including all assets acquired through use of leverage; and
  • then aggregate the determined values of assets under management for all AIFs managed.

AIFs managed by the AIFM for which the AIFM has delegated functions shall be included in the calculation, but portfolios of AIFs that the AIFM is managing under delegation (pursuant to the provisions of the Directive) shall be excluded from the calculation. Where an AIF invests in other AIFs managed by the same AIFM, such investment may be excluded from the calculation. Each derivative instrument position, including any derivative embedded in transferable securities, must be included in the calculation. The Level 2 Regulations specify conversion methodologies for calculating the absolute value of that position.

The total value of assets under management ("AuM") must be calculated at least annually using the latest available asset values, and small AIFMs must monitor such amounts on an on-going basis. A small AIFM must notify the FCA without delay when the AuM are first identified as temporarily being above the sub-threshold limit. The breach is deemed temporary if it is expected to last for three months or less. The small AIFM must then notify the FCA exactly three months from when the AuM were first identified as being temporarily above the sub-threshold limit, confirming either that AuM are now below the thresholds or that it is expected to remain above a relevant threshold. In each case, the Exceed Assets Under Management Threshold Notification Form (accessible here) should be used. Where the AuM are identified as being permanently above a threshold, both the notification and an application for full-scope AIFM authorisation should be sent to the FCA without delay but in any event no later than 30 calendar days from when the AuM are first identified as being permanently above the threshold.

In applying the de minimis exemption, Member States are required to ensure that the small AIFM shall at least be subject to registration (click here for more information in the context of UK implementation of the Directive) with the competent authorities of its home Member State and subject to regular reporting requirements, for example in relation to the main instruments they are trading and the principal exposures of the AIF in question. The rationale being that, although the activities of the small AIFM concerned are unlikely to have individually significant consequences for financial stability, it could be possible that in aggregate their activities give rise to systemic risks.

Information to be provided as part of the registration and reporting requirements is clarified in the Level 2 Regulations. Such information must be updated and provided on an annual basis, although competent authorities may require such information on a more frequent basis. Small AIFMs must report:

  • the total value of assets under management (calculated as described above);
  • for each AIF, the offering document, a relevant extract from the offering document or a general description of the investment strategy, containing at least (i) the main categories of assets in which the AIF may invest; (ii) any industrial, geographic or other market sectors or specific classes of assets which are the focus of the investment strategy; and (iii) a description of the AIF’s borrowing or leverage policy; and
  • information on the main instruments that they are trading, including a break-down of financial instruments and other assets and information on the AIF's investment strategies and their geographical and sectoral investment focus, the markets of which it is a member or where it actively trades and the diversification of the AIF’s portfolio, including but not limited to the principal exposures and most important concentrations of the AIFs that they manage, all in accordance with a pro forma template provided at Annex IV of the Level 2 Regulations.

There is an opt-in procedure for AIFMs who could otherwise fall within this de minimis exemption, for example, for those who wish to be authorised in order to benefit from the marketing passport. For more information on the opt-in procedure click here.