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time as the annual report is made available...” However, in the case of a material change being made to the liquidity management systems, disclosure must be made when the change is made and notice must be given “immediately” upon a liquidity management tool, such as a gate, being applied. “Periodic” disclosure has, therefore, a rather wide meaning.

As the requirements of Article 108 set out above are expressed in the alternative, and specific methods of disclosure are not otherwise provided for under AIFMD, it is up to the AIFM and AIF to determine the appropriate means of communicating the relevant information. If a means of communication is provided for in the AIF’s rules or instruments of incorporation, this method must be used, provided the time frame is in line with AIFMD requirements.

Periodic disclosure relating to material changes to liquidity management systems or application of liquidity management tools could be communicated by investor letter, by email or by notice to investors that there has been an update on an appropriate website. Periodic reporting regarding assets subject to special arrangements and the AIF’s risk profile and AIFM’s risk management systems could be provided for in any periodic reporting provided by the AIF or the AIFM, such as a monthly newsletter or, at a minimum, in or with the AIF’s annual report. In the case of the latter alternative, consideration should be given to whether the information will become stale given the time lag in the production of the annual accounts.

However, if the change would be considered material in terms of the pre-investment disclosure, then a supplement to the offering memorandum may well be appropriate.

AIFMs should carefully consider whether all investors are on their monthly newsletter distribution list and, as a commercial, regulatory and potentially a legal issue, how circulation will meet the needs of legal and (where different) beneficial owners.

Regular disclosure is required under Article 23(5)(a) of AIFMD in relation to any changes to:

• The maximum level of leverage (calculated in accordance with the gross and commitment methods provided for under AIFMD) which the AIFM may employ on behalf of the AIF;

• Any right to the reuse of collateral; or • Any guarantee granted under a leveraging arrangement.

Article 109 of the Delegated Regulations provides that information related to these changes should be provided “without undue delay”.

There are no other requirements in AIFMD or the Delegated Regulation as to how regular disclosure under Article 23(5)(a) should be made. It could be made by way of an investor letter or in a regular newsletter (subject to our comments above) provided that this is to be issued promptly following the change. However, given that the change of leverage may be a material change to a pre-investment disclosure requirement, this would probably be better dealt with by way of an offering document supplement provided to prospective and existing investors.

Article 23(5)(b) also requires the regular disclosure to investors of the total amount of leverage employed by the AIF. Pursuant to Article 109 of the Delegated Regulation this information must be provided “as required by the AIF’s rules or instruments of incorporation, or at the same time as the [offering memorandum] and at least at the same time as the annual report is made available.”

Other than the requirements of Article 109 set out above which are, in any event, expressed in the alternative, there is also no guidance under AIFMD or the Delegated Regulation as to how regular disclosure under Article 23(5)(b) should be made. It could be provided for in any periodic reporting provided by the AIF or the AIFM, such as a monthly newsletter or, at a minimum in or with the AIF’s annual report (subject to the same concerns relating to the information becoming stale as noted above).

In terms of frequency and methods of disclosure there does not appear to be any distinguishing factor between “periodic” and “regular” disclosure. Some of the periodic and regular disclosure is to be made available “as required by the AIF’s rules or instruments of incorporation”, or at the same time as the offering memorandum and at a minimum at the same time as the annual report is made available and certain periodic disclosure is to be made available “immediately” while certain regular reporting is to be made available “without undue delay”.

In addition to the pre-investment, periodic and regular disclosure required under Article 23, an AIFM for each EU AIF it manages and each AIF it markets into the EEA is required to make an annual report available to existing (and prospective) investors within six months of the end of the financial year. Article 24 of AIFMD (and Article 29 where the AIF takes control of a non-listed company), supplemented by Articles 103 through 107 of the Delegated Regulation, sets out required content for the annual report and the method of preparation. The accounts must be audited and prepared in accordance with the accounting standards of the home Member State of the AIF or the country where

the AIF is established and in accordance with the rules set out in the AIF’s rules or instruments of incorporation.

The annual report must include, in addition to the normal requirements of a statement of assets and liabilities and income and expenditure:

• A report on the activities of the financial year; • Any material changes to the information disclosed pursuant to Article 23;

• Information regarding the remuneration paid by the AIFM to its staff during the relevant period; and

• Where the AIF acquires individually or jointly control over a non-listed company, information regarding the target company’s business development.

Detailed requirements in terms of contents are included in the Delegated Regulation at Articles 104 and 105.

The information regarding remuneration to be disclosed is set out at Article 22(2)(e) and (f) of AIFMD and supplemented by Article 107 of the Delegated Regulation and includes:

• The total amount of remuneration for the AIFM for the financial year split into fixed and variable remuneration (including carried interest), including the number of beneficiaries;

• Remuneration paid to senior management and to AIFM staff whose “actions have a material impact on the risk profile of the AIF”;

• Remuneration paid to staff who are fully or partially involved in the activities of the AIF, including the number of beneficiaries;

• The amount of the remuneration paid which is attributable to the relevant AIF and number of beneficiaries; and

• The AIFM’s remuneration policies and practices, including in relation to management of conflicts of interest.

The requirement to include information regarding AIFM remuneration in the AIF accounts is the most controversial investor disclosure requirement introduced by the Directive. It can pose security risks for the individuals involved and would be viewed by many as intrusive, with limited benefit for investors. In this regard, the Directive and its supporting rules fail to recognize the clear differences in risk and operation between the banking and investment management industries.

Investor protection – what have we gained? Where then does all of this leave us in terms of investor transparency and the goal of improved investor protection post AIFMD?


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