The main business task of an investment fund is to effectively invest money to achieve a specific commercial goal. An alternative investment fund has a number of regulatory, organizational and tax advantages. Registration of an alternative fund in Europe is an opportunity to conduct business at the international level, as it has a number of undeniable advantages that will be discussed in this article.
So What is AIF?
These are structures that serve for collective investments of a small group of people, work or are managed in the EU and are created on the basis of a special European Union Directive. However, the term “collective investment enterprise” is not defined either in the Directive or in any other legislation. It appears to be broader than the British term “collective investment scheme” as defined in the Financial Services and Markets Act 2000.
Recently, the European Securities Supervision Authority (ESMA) published a report with AIFMD Key Concepts Guidelines. If you want to register an alternative fund in Europe, we recommend that you familiarize yourself with this report, which contains detailed definitions regarding the activities of alternative investment funds.
Subtleties of Registering AIF
The registration of an alternative investment fund in Europe is tied to a company that has an asset management license. However, the role of the regulator or supervisor in creating such a fund is minimal - it is simply informed about the creation of such a structure. Further, the investor council or a group of persons associated with investors, agree with the company management about their investment goals and conditions. In this case, investments are not limited only to the securities market. This may be the real sector: the purchase and resale of real estate, the implementation of real estate development projects or any other business area.
A licensed management company offers investment options, but the upper hand in making investment decisions is behind investors who are advisers. The management company, for its part, has the right to veto, since there are risks associated with the firm’s professional reputation.
AIFMD Terms of Service do not exclude the registration of joint ventures. However, the issue of whether the provisions of the Directive should apply to them is now being considered. So is it possible to register a joint venture under the definition of AIF?
FCA gives a detailed answer to this question:
“Joint ventures are often a combination of equality and experience, with one partner having the necessary experience to manage, and the partner in the contributed share of shares is involved in making more important strategic decisions. Parties may also hire an independent person to manage the enterprise. These factors do not necessarily mean that the entity falls within the definition of AIF. Such a company commitment can still be defined as a joint venture if strategic financial and operational decisions are controlled by all parties. Each of the parties must constantly participate in the overall strategic management of the enterprise”.
The question of whether EIS funds can be AIFs has also been considered by regulators. As a result, they came to such conclusions that the concept of “combined income”, as set out in the ESMA guidelines, does not require the combination of basic property - it is associated with the combination of capital, risk and profit. Based on this, even if a regular EIS fund does not lead to a pool of investor companies, it will still be a collective investment enterprise. That is, such a company falls within the definition of AIF.
Alternative Funds Advantages
The advantage of choosing an alternative investment fund as opposed to the usual corporate structure is that it avoids the risk of disagreement between investors, and is also more effective from the point of view of operational management.
As a rule, an asset management company provides the opportunity to use its own infrastructure, for example: legal, accounting and administrative support, as part of the work of the fund.
In addition, such funds are not subject to corporate profit taxation.
IQ Decision UK lawyers will provide professional support if you decide to register the fund in Europe. We are also ready to answer all your questions during an individual legal consultation on the registration of an alternative fund in the EU. Please contact us directly using the form below or any other way convenient to you.