Requirements for licensing of alternative investment funds managers (AIFM) – Part 1

Funding required for running the business
As already posted on June 2012 (see below), from July 2013 on all collective investment schemes, which are not already covered by the UCITS Directive [Directive for the regulation of collective investment undertakings; Directive 2009/65/EC] are regulated by the AIFMD. Therefore fund managers of so-called “alternative” funds, such as private equity funds or hedge funds generally are required to obtain a license for their activities.

There are numerous requirements that have to be met in order to obtain an AIFM-license by the Federal Financial Supervisory Authority (BaFin). One of these conditions is the availability of adequate capital.

The applying AIFM has to prove that it disposes of adequate capital. In this regard, a distinction is drawn between initial capital and own funds.

The initial capital is at least EUR 300,000 for an internal AIFM. Internal AIFMs are investment companies that have not designated an external management company. The initial capital for an external AIFM amounts at least to EUR 125,000. External AIFMs are management companies that manage at least one AIF. The amount of additional own funds required varies depending on the value of the managed investment funds. For providing the additional amount a relief is provided: 50% of the required additional capital may be replaced by a guarantee. Such a guarantee is, however, only recognized if it is issued by banks and insurance companies which comply with the regulatory requirements established by the European legislator.

It has to be considered furthermore that an AIFM at any time must have own funds which include inter alia a quarter of the cost of general administrative expenses.

Concerned AIFMs should act now on the capital requirements for the licensing procedure and ensure that adequate resources, including where appropriate by providing a guarantee, are available within the licensing process.

(To be continued)

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