FAQs: The role of an AIFM
The Alternative Investment Fund Managers Directive (AIFMD) is a European Union regulatory framework aimed at harmonising the rules governing alternative investment fund managers (AIFMs) and increasing investor protection. The role of an AIFM is crucial in ensuring compliance with the directive and carrying out portfolio management, risk management, governance, and delegate oversight for investment managers.
In this interview with Kevin Curtis, Head of AIFM Oversight – Dublin, we will delve into the role of AIFMs and their responsibilities.
What is the role of the AIFM?
The Alternative Investment Fund Manager (AIFM) ensures compliance with AIFMD regulations and carries out oversight, risk management, compliance, governance, and delegate oversight for investment managers and the Alternative Investment Funds (AIFs) for which it manages. It also manages and monitors regulatory changes and filings required in each jurisdiction that the AIFs may be domiciled and distribute.
The AIFM can provide tailored risk management services and look after the large number of necessary regulatory filings, which can take a great burden off of investment managers, allowing them to focus solely on their own core activities.
What does the AIFM do for the fund manager?
The AIFM provides a wide range of services for the fund manager, including portfolio management, investment oversight, tailored risk management services, compliance and governance, and delegate oversight. Specifically, the alternative investment fund manager can fulfil and oversee the regulatory requirements for the investment manager set forth by the regulator, such as monitoring investment restrictions and risk limits, which can be specifically tailored towards the fund itself.
Additionally, the Management Company (ManCo) will manage the vast number of quarterly submissions and regulatory filings due to the regulator on behalf of the investment manager. This can be extremely time-consuming and taxing on a firm’s resources, again, reducing the overall burden on the investment manager by taking away some of the more administrative work.
What is the difference between AIFM advisory and portfolio routes in terms of portfolio management services?
Under the advisory model, AIFMs can provide an in-house portfolio management function, receiving advice from an appointed investment advisor. In this situation, an Advisory Agreement will be put in place.
Under the delegation model, the fund's governing body appoints an AIFM by means of an agreement. Subsequently, the AIFM then delegates the portfolio management responsibilities back to the external investment manager via an investment management agreement.
Can an AIFM delegate risk management services?
Yes, it is possible for an AIFM to delegate risk management services, but regulatory approval is required. However, it's essential to be cautious about delegating too many key responsibilities, to avoid making the ManCo redundant or lacking purpose.
Can an investment manager set up an AIFM?
Yes, an investment manager can set up its own proprietary AIFM. However, it generally comes with significant financial, operational, and resource intensive obligations. This often makes third-party ManCos a more convenient and efficient option.
Perhaps the most beneficial aspect to choosing a third-party management company is that they have everything set-up and ready to go. The necessary regulatory approvals and licences have already been obtained, the right expertise and experienced personnel are in place and there are boots on the ground . The combination of all these factors can save an investment manager critical time and money.
Does Ocorian provide AIFM solutions?
Ocorian is a specialist provider of AIFM services for private capital alternative investment managers. We have extensive expertise in managing private equity, real estate, infrastructure, and private debt funds.
Our teams are based in Dublin and Luxembourg. By having sector specialists amongst its team, we can ensure a smooth alignment of investment processes with the fund manager and offer expertise on complex risk and compliance matters.
Additionally, Ocorian is also authorised to provide fund administration services 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.