www.pwc.lu/aifmd
The AIFMD strategy
Making your AIFMD strategy pay
The Alternative Investment Fund Managers Directive
(“AIFMD”) will be transposed in EU Member States’
national legislations by July 2013. Luxembourg will most
likely be at the forefront of this transposition. By July 2014,
existing alternative investment funds (AIFs) in Luxembourg
will have to have a single alternative investment fund
manager (AIFM) responsible for their investment and
risk management. This AIFM will be required to comply
with quite onerous requirements, be it in terms of capital,
organisation and conduct of business rules. The scope of
their activities, the ability and the way to delegate functions
are now clearly defined.
Diagnostics, assessment and
advice
Who will be the future AIFM?
According to the AIFMD, the AIFM is the entity
that “manages” the AIF. An AIFM must, at least
perform, when managing an AIF, the portfolio
management and risk management functions,
notwithstanding its ability to delegate in part or
in whole these functions.
It is first necessary to identify the funds or
structures that meet the definition of an AIF,
before identifying the AIFM. As a general rule,
it is expected that those Luxembourg products
which are not UCITS, i.e. the Part II funds, SIFs
and SICARs and many unregulated products
will most likely be AIFs. While the identification
of an AIF may be straightforward under certain
circumstances, it can be quite complex and
subject to interpretation given the lack of clear
definition of an AIF and the various exemptions
available.
Depending on the legal form of the AIF
(contractual or corporate), the AIFM will, as the
case may be, probably be:
• the management company of those AIFs
(Chapter 16 or 15 management company,
the latter if it also manages non-UCITS), or
• another entity that the AIF appoints as such.
Once appointed the AIFM will be responsible
for ensuring compliance with the Directive, or
•
• finally, the corporate type AIFs can decide to
be “self-managed”, i.e. it will not designate
an external AIFM to manage it but rather
take care of its management internally
It is indeed left at the discretion of the AIF to
decide who it will appoint to act as its AIFM.
Thanks to the management passport, this AIFM
may be located in any EU country.
The choice will depend on many factors:
existing entities in charge of portfolio and or
risk management within the organisation wish
to avoid a duplication of requirements notably
in terms of capital, distribution strategy (in or
outside the EU), and also client demands and
expectations, etc. There is not one preferred
solution; deciding on an optimal target business
model will be complex. The identification of ‘in
scope’ AIF and determination of its AIFM should
be the first and essential step on the road to
implementation. Consequences will need to be
considered at each step and strategic decisions
made by senior management to establish a
target business model that is compliant but
also efficient and taking into account business
priorities.
If, as part to the strategic decision making,
restructuring of entities and/or activities cross
border is considered, the potential impact as
well as the opportunities in respect to taxation
including transfer pricing will need to be
analysed. Indeed, any change in the functional
and risk profile of a legal entity will trigger a
change in the transfer pricing policy applicable
to the impacted entity. The impacts can be
minor, but also important. If, for example,
functions are transferred from one country to
another, this may trigger exit taxation. If due to
an amended transfer pricing policy, profits are
increased in one country, they will most likely
be reduced in another country. Tax authorities
may challenge the changed profit allocation.
Getting the profits in the ’right’ place within
the multinational organisation can have a
significant impact on a group’s effective tax
rate. Another key aspect to consider is VAT.
While fund management activities are generally
VAT exempt, there remain some divergences
in the scope of the services covered from one
EU country to another. Choosing a location
for the AIFM where the rate, scope of the VAT
exemption and input VAT recovery position are
the most favourable should be one of the factors
to consider in the overall decision.
What will the future AIFM need to do?
The AIFM will need to adapt or set
up accordingly so that it complies
with the requirements imposed by
the Directive:
Portfolio Manager
Board of Directors & Conducting Officers
Compliance
& Internal
Audit
Portfolio
Mgt.
Administration
Marketing
Risk and Liquidity Management
Delegation control
Administration Agent
Here are the various impacts of the directive on the AIFM.
AIFMD - Key Impact Areas or the AIFM
• Management passport
• Marketing passport
• Private placement
6


Passporting
rules
1
• Scope
• Authorisation requirements
• Capital requirements
Conduct of
Business
4
3

2
• Leverage
• Major holding and control
• Asset stripping
• Valuation requirements
• Risk & liquidity management
• Delegation oversight
AIFM

Specific
Provisions
Functions and
services
Transparency

• Remuneration guidelines
• Rules of conduct
• Conflict of interest
5
Authorisation
Corp.
secretary

• Annual Report
• Reporting to regulators
• Disclosure to investors
Depositary Bank
• its capitalisation will probably
need to change, at a minimum
to take into account the new
requirement for a coverage
of professional indemnity.
Depending on the level of
AuM additional capital may be
significant;
• a sound organisation in terms of
human and technical resources
as well as independent control
functions will need to be put in
place;
• new rules on risk and liquidity
management, adapted to the type
of funds managed, will need to be
implemented;
• delegation arrangements will
need to be reassessed, some
may need to be modified to be
compliant;
• onerous transparency and
reporting obligations will need to
be taken into account. The AIFM
may consider outsourcing these
transparency requirements;
• an independent valuer will need
to be appointed, either internally
or externally;
• unregulated AIFs, which to date,
did not require a depositary will
need to appoint a depositary;
• conduct of business rules,
the purpose of which is to
avoid conflict of interests,
remunerations and inducements
which are undue will now apply;
• the directive requires that
comprehensive policies and
procedures be put in place and
documented;
• A number of requirements will
necessitate modifications to
existing agreements.
What about delegation?
Managers of AIF in Luxembourg, be they Chapter
16 management companies or self-managed
SICAVs, are currently responsible for portfolio
management and risk management while
delegating significantly these functions. Under the AIFMD, the extent of delegated
functions will evolve.
individually delegated tasks substantially exceeds
the tasks remaining with the AIFM.
The Directive is clear, an AIFM cannot be a letter box
entity. At this point in time, it is unclear what level
of activity and substance will be required at the level
of the AIFM. In a recent discussion paper, ESMA
stated that it considers that an AIFM may delegate
the two functions (i.e. portfolio management or
risk management) either in whole or in part, with
the understanding that an AIFM may not delegate
both functions in whole at the same time. In its
draft Level 2 regulation, the EU commission is going
one step further, indicating that an AIFM shall be
considered a letter box entity if the totality of the
Another aspect to consider is that the delegation
of the portfolio management to the depositary,
prohibited under UCITS, goes even a step further
in the AIFMD as its prohibition is extended to the
sub-depositary. For many financial groups here
in Luxembourg, this may create a real issue as the
mother company abroad is often the designated
portfolio manager for the Luxembourg fund of the
group and it acts as a (global) sub-custodian.
What ever the outcome and the final level 2
measures, it is clear that current delegation schemes
and activities remaining at the level of the AIFM will
need to be reassessed and most likely modified.
The above only illustrate some of the questions
surrounding future delegation arrangements.
AIFMD management company
Delegation control - Stricter than under UCITS
AIFMD guidelines
Board of Directors & Conducting Officers
Compliance
& Internal
Audit
Portfolio
Mgt.
Administration
Marketing
Corp.
secretary
Risk and Liquidity Management

Delegation control
Key operational issues

UCITS similarity scale
Similar
• ‘Objective reason’;
• Prior notification, sufficient resources, good
repute and experience;
• Delegate must be authorised in case of the
delegation of PM/RM;
• Delegation to 3rd countries subject to
conditions;
• No delegation of PM/RM to Depositary Bank
or its delegates.
Different

• Identification and assesstment of delegates;
• Assessment and documentation of ‘objective
reasons’;
• Assessment of non-compliant delegations and
delegates;
• Anticipation of prohibition of PM/RM
delegation to delegates of the Depositary.
Can a UCITS Management Company be used
as future AIFM?
As the AIFMD clearly states that an AIF may be
managed by a UCITS management Company,
provided it extends its scope of activities, the
answer is an obvious one. On the face of it, the use
of a UCITS ManCo as the AIFM is very appealing
in view of the similarities in term of capital
requirement, conduct of business rules, resources
and organisation. However, the level of economies
of scale will vary, as an AIF is not a harmonised
product. Will it make sense to mix all different asset
types and hence risks under one company? Can
one really leverage significantly on what already
exists? These questions will need to be considered
early on.
Is the self-managed AIF an alternative to
designating a future AIFM?
The AIFMD, as UCITS, provides corporate type of
AIFs with the possibility to be “self-managed”, e.g.
they do not have to name an external AIFM and
must comply with all the Directive’s requirements.
Conditions relating to capital and own funds of
those self-managed AIFs are for example much
lower, but in turn their scope of activities is very
limited. They can only manage their own assets. For those AIFs which are under the threshold of 100
Mio EUR, which is the amount of AuM allowing
to be exempted from most requirements of the
AIFMD, going the self-managed route is probably
quite appealing...if you don’t want or need to take
advantage of the new marketing passport granted
by the AIFMD, which will allow qualifying AIFs to
raise publicly capital from professional investors
in Europe. Again this will need to be considered
upfront when deciding what the target business
model should be.
How we can help
• Help you diagnose how and where the
Directive will have an impact on your
business and products and hereby create a
map of your overall structural framework
focusing on the products (i.e. in scope,
out of scope, location and investor
specific issues), on the entities (i.e. their
location, who is in, who is out and how
different entities may be impacted) and
on relationships (i.e. both internal and
external). We can assist you in determining
who should act as your products’ AIFM
and reflect with you which model is most
appropriate if you are in a third-party
business;
Business Units
Compliance
& Internal
Audit
Portfolio
Mgt.
PwC inputs
Fund
Accounting
/Reporting
Sales
Risk and Liquidity Management
1.
Standardised AIFMD
analysis approach
Oversight of Delegated Functions
2.
Involvement of local
AIFMD & industry experts
3.
Benchmarking with
general industry trends as
to AIFMD strategy
Work program/
Analysis-Matrices
This AIFMD team of experts can:
Integral to this assistance is our deep
industry knowledge in Luxembourg and
Europe and our expertise in the AIFMD.
Our team of experts has followed each
step of the Directives development and its
related implementation measures and has
been engaged in on-going dialogues with
key stakeholders, including asset managers,
service providers, trade associations
and regulators. Take advantage of this
knowledge and transform it into benefits.
AIFM
GapAnalysis
Our multi-disciplinary and multi-industry team
of professionals in business strategy, operation
and structuring, regulatory compliance, tax,
remuneration and assurance services can help
you: identify and assess the many impacts of
the Directive on your organisation and develop
an integrated response to the AIFMD. Our
team works closely with the PwC European
AIFMD working group to make sure that
knowledge and best practices are shared on a
Pan-European basis.
• Once this mapping exercise and
determination is done, provide you with
an analysis of affected areas and give you
recommendations regarding the necessary
amendments, in all their dimensions, to
comply and fit with your strategy;
• Finally, if required, we can bring the
necessary support and advice to assist
you further with implementing any
enhancements to your organisation.

The AIFMD is a complex piece of legislation.
Far from being only the compliance monster
many put forward, it reveals real opportunities
for those who implement it wisely. It contains
many technical requirements, some of which
may require significant changes to your current
structures and organisation.
As-Is
To-be

Please refer to our “Depositary Bank compliance check - Diagnosing before resolving” flyer for more
information (www.pwc.lu/aifmd)
Why PwC Luxembourg?
PwC Luxembourg (www.pwc.lu) is the largest professional services firm in Luxembourg with more
than 2,100 people employed from 57 different countries. It provides audit, tax and advisory services including
management consulting, transaction, financing and regulatory advice to a wide variety of clients from local
and middle market entrepreneurs to large multinational companies operating from Luxembourg and the
Greater Region. It helps its clients create value they are looking for by giving comfort to the capital markets and
providing advice through an industry focused approach.
Contacts:
Marie-Elisa Roussel, Audit Partner
+352 49 48 48 2583
[email protected]
Begga Sigurdardottir, Tax Partner
+352 49 48 48 5843
[email protected]
Xavier Balthazar, Regulatory Partner
+352 49 48 48 2543
[email protected]
Olivier Carré, Regulatory Partner
+352 49 48 48 2615
[email protected]
Michael Daemgen, Regulatory Director
+352 49 48 48 2615
[email protected]
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