CP12/32: Implementation of the Alternative ... - BVCA admin

November 2012
Types of AIFs
CP12/32
Implementation of the Alternative Investment Fund Managers Directive
3.12 The definition of an AIF determines generally what the scope of the Directive is, but for
some undertakings the definition is not precise enough to give certainty about whether it is
an AIF. To distinguish whether certain undertakings are AIFs, firms will need to consider
several factors. For example, an entity may be out of scope if its main business is a
commercial activity such as manufacturing goods or constructing buildings, or providing
services to customers. An AIF may own a manufacturing or service company, or land that is
being developed, but it does not participate directly in the commercial activity being carried
on by that asset. Another indicative factor that might place an entity out of scope would be
the presence of a substantial number of employees carrying on commercial activities,
whereas an AIF would generally employ relatively few people to manage its assets.
3.13 We note below some types of entity that may be AIFs depending on their specific
characteristics. We encourage firms to analyse the entities or other structures under their
management against the Directive’s AIF definition and take account of the forthcoming
ESMA guidelines.
3.14 Property investment firms: Some of these investment firms have the characteristics of an
investment fund such as pooled investment, a defined investment policy, etc, but they may
also have characteristics of a commercial company, such as employees, and may perform
service activities such as property construction and development. Real estate investment
trusts (REITs) are a type of property investment firm, and accordingly we consider that
they may or may not be AIFs depending on the specific activities they carry on.
3.15 Joint ventures: Joint ventures may have fund-like characteristics such as capital-raising,
passive participants, defined investment policies, etc. However, where investors in a given
joint venture structure have substantial management control over strategic decisions, there
is likely to be a contrast with the governance of typical AIFs. Although Recital 8 of AIFMD
excludes joint ventures in principle, all joint ventures will nevertheless have to review their
structures against any final Commission measures or ESMA guidelines.
3.16 Family office vehicles and private wealth undertakings: Recital 7 states that ‘Investment
undertakings, such as family office vehicles that invest the private wealth of investors
without raising external capital should not be considered to be AIFs’. Based on the recital,
the key factor for family offices and private wealth undertakings seems to be whether
external capital is being raised. We expect more detail on this concept from ESMA.
3.17 Internally-managed AIFs: The Directive allows for internally-managed AIFs, where the legal
form of the AIF permits it, and no external AIFM is appointed. 24 In the context of the UK
market, some examples will be certain investment companies whose board retains control of
all investment management functions, where no external manager has been appointed, and
where the investment company employs staff to assist with investment management decisions.
24 Article 5(1)(b) AIFMD.
Financial Services Authority 25