Capital Requirements

Under the Directive, an AIFM which is fully authorised under the Directive and is an internally managed AIF is required to have initial capital of at least €300,000.

An authorised AIFM which is an external manager of one or more AIFs is required to have initial capital of (i) €125,000 plus (ii) 0.02% of the value of the portfolios of the AIFs it manages in excess of €250 million, subject to a cap of €10 million. The Directive gives Member States the flexibility to authorise AIFMs not to provide 50% of the amount referred to in (ii) if the authorised AIFM benefits from a guarantee from a bank or insurer. However, please note that this provision has not been transposed into UK law, and the position will need to be checked on a country-by-country basis. In addition, capital requirements under the Capital Adequacy Directive must be complied with (typically one-quarter of its preceding year’s fixed overheads).

The capital requirements mentioned above do not apply to an AIFM which is also authorised as a management company for the purposes of the UCITS Directive.

Further, authorised AIFMs must either (i) have professional indemnity insurance, or (ii) have additional own funds appropriate to cover risks arising from professional negligence. In the case of (i) above, in addition to obtaining professional indemnity insurance, the authorised AIFM must hold adequate own funds to cover any exclusions in the insurance policy. In the case of (ii) above, the additional own funds must equal at least 0.01% of the value of the portfolio of AIFs managed.  The liability of the AIFM should not be affected by delegation or sub-delegation and the AIFM should provide adequate coverage for professional risks related to such third parties for whom it is legally liable.

Own funds (including any additional own funds for the purposes of covering professional liability risks) must be invested in liquid assets or assets readily convertible to cash in the short term (and not in speculative positions).

UK implementation

In the UK, the capital requirements are set out in IPRU-INV (Chapter 11) of the FCA Handbook.