AIFMD joint-venture exclusion may extend to limited partnerships

EUROPE – Joint ventures will be excluded from new regulation under the Alternative Investment Fund Managers Directive (AIFMD), and this may extend to limited partnerships, the latest guidance from the UK regulator confirms.

The Financial Conduct Authority (FCA), which is overseeing national implementation of the directive, has firmed up guidance on which type of investment vehicles are subject to the requirements in its policy statement 13/5.

In its guidance on the scope of AIFMD, the FCA said the approach to the exclusion of a joint venture was not based on a formal legal definition of a joint venture but on the broad concepts in the definition of an Alternative Investment Fund (AIF).

Because of this, commercial substance had to be taken into account as well as legal relationships, it said.

It said it was quite common for joint ventures in England and Wales to be structured as a limited partnership, and that those arrangements could still be excluded joint ventures.

The AIFMD rules come into force on 22 July, though the FCA says there will be some transitional relief for firms for up to a year after that.

Clubs and other co-ownership arrangements may benefit from being excluded from the new rules by avoiding the additional regulation, which could cause a drag on performance.

Under AIFMD, investment managers are required to fulfill capital adequacy, risk management, transparency and other compliance requirements.

They will also need to appoint a depositary to monitor cash flows, ensure safekeeping of securities and provide general oversight.

Melville Rodrigues, partner at law firm CMS Cameron McKenna, welcomed the pragmatic approach being adopted by the UK regulator.

"It creates a workable solution for joint ventures and club arrangements to operate outside the scope of the directive," he said.

"The regulator has helpfully clarified that a limited partnership may be an excluded joint venture in the context of the investors exercising control through the general partner.

"I hope the other EU regulators will adopt a similar approach with equivalent limited partnership structures in their own jurisdictions."