Letter from Brussels

The Alternative Investment Fund Managers Directive (AIFMD) was adopted following the global financial crisis, which exposed certain weaknesses in global financial markets and their regulatory regimes. The directive had a major impact on the non-listed real estate funds industry in Europe by establishing harmonised rules for the management and marketing of nearly all alternate investment funds in Europe. 

INREV has been working closely with policy makers since the early days of AIFMD

Under the directive, most managers of non-listed real estate funds in Europe became subject to far-reaching requirements regarding their structure and operations and were required to obtain authorisation from their national financial regulators. Following authorisation, managers could obtain a passport to manage and/or market EU funds in other EU Member States.

INREV has been working closely with policy makers since the early days of AIFMD. In the first few years that AIFMD was in effect, we identified several areas where improvements were needed, often with success. In the Capital Markets Union mid-term review in the spring of 2017 and the KPMG review of AIFMD in 2018, INREV highlighted several issues where we believed there was still room for improvement, including:

• Member States ‘"gold plating’" of requirements related to obtaining or exercising passporting authority; 
• Inconsistent definitions of terms such as ‘"professional investor’", ‘"material change’" and ‘"marketing’" among Member States, which impede efficient use of passporting; 
• Inconsistent calculation and imposition of fees related to passporting by Member States;
• The lack of rules for notifying a local regulator that the AIFM no longer wishes to market an AIF (‘“de-notification’”); and
• Unlimited liability of external valuers for simple negligence.

The INREV Public Affairs Committee is already deeply engaged in reviewing and preparing a response to the 102 questions raised in the nearly 100-page document by the 29 January deadline

Since then, progress has been made to reduce or eliminate many barriers to the efficient use of passporting. Actions taken by ESMA or the European Commission, including adoption of the Cross-Border Distribution Directive introduced welcome improvements to what activities are permissible ‘“pre-marketing’” and rules allowing AIFMs to withdraw marketing permission for a fund in Member States via a simple notification to their home state regulator. 
In addition, new rules oblige national regulators to make information on the fees, fee calculation methodologies and summaries of local marketing rules that applying in their jurisdiction publicly available. A recent consultation on implementing technical standards for cross-border marketing provided an opportunity for further granular input on Member States’ requirements related to exercising marketing passport authority in response to ESMA’s request for help identifying remaining gold plating in this area.
Despite this progress, resolution of issues such as unlimited liability for external valuers and inconsistent definitions among Members States of ‘semi-professional investor’ would be welcome. At the same time, tightening of current rules on delegation of AIFM responsibilities and limiting the widely used host AIFM structures, which ESMA suggested in a recent letter to the Commission, need to be vigorously defended against.

A consultation launching the Commission’s review was delayed by the Covid crisis, but in late October, the long-awaited consultation paper on AIFMD was finally released. The INREV Public Affairs Committee is already deeply engaged in reviewing and preparing a response to the 102 questions raised in the nearly 100-page document by the 29 January deadline. Efforts are also being taken through the European Real Estate Forum to ensure the responses filed by other European real estate industry associations are aligned. Through clear, evidence-based arguments, we hope to work constructively with policy makers to develop even more efficient and effective AIFMD regulations for the real estate investment funds industry in Europe.

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