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Everything You Need to Know About AIFMs

Everything You Need to Know About AIFMs

29 June, 2023

Alternative Investment Fund Managers (AIFMs) have become an integral part of the alternative investment funds market. They are responsible for managing alternative investment funds (AIFs) and ensuring compliance with the AIFMD regulations introduced after the financial crisis.

The goal of AIFMD regulations was to provide investors with an extra level of protection and increase market transparency. However, the role of AIFMs can often be confusing to those unfamiliar with the intricacies of the financial industry.

We recently sat down with Kevin Curtis, Head of AIFM Oversight – Dublin, to discuss everything you need to know about AIFMs and demystify their role and importance. 

The outcome is the following guide which breaks down the essentials, providing clear answers to the most common questions about AIFMs.

What is an AIFM?

AIFM stands for Alternative Investment Fund Manager. An AIFM is a regulated legal entity responsible for, at a minimum, the portfolio management and risk management of one or more Alternative Investment Funds (AIFs).

To provide its services, the AIFM company needs to be approved by a European regulator and authorised under the Alternative Investment Funds Directive (AIFMD) regulations. 

An AIFM can take one of the following forms:

  • In-house model: A company within the investment manager’s organisation.
  • Single Partner model (ManCo): A third-party company that also offers fund administration and depositary services.
  • Super ManCo model: A third-party company specialising solely in management for liquid and illiquid funds.

In its simplest form, however, an AIFM is a management company that manages alternative investment funds.

What is an AIF?

AIF stands for Alternative Investment Fund. It means a collective investment undertaking, or fund, that raises capital from professional investors and invests the capital according to a specified investment strategy or investment policy. AIFs can include private equity, private credit, real estate, venture capital, and infrastructure. 

What is the difference between an AIF and an AIFM?

The AIF is the fund itself, that raises capital and invests it according to a specified investment strategy or investment policy. The AIFM is the regulated legal entity responsible for the portfolio management and risk management of the AIF. In other words, the AIFM manages the AIF.

AIFM services overview

At a high level, the AIFM is responsible for ensuring compliance with the Alternative Investment Fund Managers Directive (AIFMD) regulations for each AIF it manages.

An AIFM is generally authorised to carry out two primary functions: portfolio management and risk management:

  • Portfolio management involves overseeing the fund's investments to achieve its objectives.
  • Risk management includes identifying, assessing, and mitigating risks to protect the fund and its investors.

Besides these two services, an AIFM company can also provide additional ones. In Ocorian’s case, we also offer our clients the following AIFM solutions:

  • Valuation oversight ensures the fund’s assets are accurately and consistently valued, building trust and transparency for investors.
  • Compliance management keeps the fund on track with legal and regulatory obligations, reducing risks and safeguarding operations.
  • Governance establishes a robust framework to guide decision-making and maintain accountability.
  • Outsourcing and delegation oversight supervise external service providers to guarantee high-quality performance and compliance with regulations.
  • Service provider selection helps investment managers choose the right partners, such as fund administrators and depositaries, to support their goals.
  • Regulatory landscape monitoring helps investors stay ahead of evolving AIF regulations, ensuring the fund remains compliant in a dynamic environment.
  • Regulatory filings take care of submitting essential filings in every jurisdiction the fund operates, simplifying complex requirements.

Curious how Ocorian can help your AIF? Discover our full suite of AIFMD services, and contact our dedicated team to learn more. 

Understanding the Role of AIFMs

AIFMs play a crucial role in meeting the specific AIF requirements established by the AIMFD regulations. 

What is AIFMD?

Alternative Investment Fund Managers Directive (AIFMD) is a regulatory framework implemented in 2013. It was introduced after the financial crisis to help better protect investors and provide transparency across alternative funds. AIFMD regulations apply to all EU-registered hedge funds, private equity funds, and real estate investment funds.

How can AIFMs help meet those requirements? 

For starters, AIFMs often assist in the preparation and submission of financial statements to the regulator. They also provide risk management services - overseeing and implementing both fund and operational risk frameworks.

ManCo providers like Ocorian also analyse investment restrictions and risk limits of the AIFs. We also evaluate and monitor delegates and service providers to ensure quality and compliance, identify potential vulnerabilities, and implement business continuity plans to safeguard fund operations.

Simply put, an authorised alternative fund management company adds an extra level of protection to both the investor and the financial market itself.

Who Needs an AIFM?

Every individual or entity targeting European professional investors falls under the scope of AIFMD regulations.

This means that investment managers, both within and outside the EU, who plan to establish and distribute Alternative Investment Funds (AIFs) to European professional investors must have an AIFM in place before they launch their fund - either by setting up their own proprietary AIFM or partnering with a third-party provider.

What are the benefits of hiring an AIFM company?

When setting up an AIF, you’ll have two possibilities. You can either establish your in-house AIFM (which can be complicated and costly) or hire an authorised AIFM company (ManCo) like Ocorian to help manage your funds. 

Most investors go the second route. Here’s why:

  • Risk mitigation. AIFM companies handle everything from market to operations risk, keeping you compliant with AIF regulations and ensuring strong governance that protects your reputation. 
  • Simplified capital raising. Ocorian’s cross-border marketing passport allows you to easily distribute your funds to EU professional investors through a single point of contact.
  • Faster fund launch. Authorised AIFMs like Ocorian offer investors ready-to-go infrastructure, legal documentation, and expert service providers to make launching their funds quick and hassle-free.
  • Cost saving. Setting up and managing your own AIFM can be expensive and resource-heavy. Outsourcing to a third-party AIFM is often a more cost-effective option.
  • Regulatory support. AIFM providers can keep funds fully compliant with changing UK, EU, and global regulations, so you’re always in line with AIFMD requirements.

What is the difference between an AIFM and a ManCo?

A ManCo, or management company, is an umbrella term for all fund management companies that include AIFMs. However, other types of ManCos also exist in the industry, for example, UCITS management companies and ‘Super ManCos’ (authorised to manage both UCITS and AIFs). An AIFM, on the other hand, specifically looks after alternative investment funds (AIFs). That said, an AIFM is essentially a subcategory of the overall broader term of ManCo.

How can Ocorian’s AIFM solutions help?

Ocorian is a specialist provider of AIFM solutions for private capital alternative investment managers.

We have extensive expertise in managing private equity, real estate, infrastructure, and private debt funds.

Our AIFM teams are based in Dublin and Luxembourg. They help your team ensure a smooth alignment of investment processes with the fund manager and offer expertise on complex risk and compliance matters.

Ocorian is also authorised to provide fund administration and real asset depositary services. As a result, we can provide a seamless one-stop-shop solution to help fund managers realise their investment strategies and deliver value to their investors.

Discover our AIFM services, and contact our team today to learn more about how Ocorian can help you stay on top of AIFMD regulations.