AIFMD v UCITS
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The JC’s Reg and Leg resource™
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As a comparison piece to our showdown between EMIR v MIFID we offer you our UCITS v AIFMD showdown. These are of course the flagship regulations for EU for investment fund regulation.
Generally speaking, UCITS is for retail investment funds — think granddad dandling grandchildren on knees, nostalgic glamour-glow photos of children blowing on dandelions and so on — and is, therefore, more restrictive than AIFMD, which is for hedge funds, private equity funds, venture capital funds and collective investment schemes that are not in scope for UCITS, because wistful granddads cannot reasonably invest in them.
That said investment funds are investment funds however much money you have to put in them so there are some commonalities between the regimes — the need, for example, to have a depositary to hold cash and assets in either case — where there are equivalent provisions, AIFMD’s tend to be laxer, and more contract-outable-from.
| Aspect | UCITS | AIFMD |
|---|---|---|
| Regulatory Objective | Harmonising regulation for retail investment funds. | Regulate managers of alternative investment funds — aka hedge funds: investment funds that are not available to retail investors, and therefore are out of scope for UCITS because (among other reasons) their minimum investment requirements are so high as to imply significant sophistication. |
| Scope | Covers retail investment funds (mutual funds) | Covers managers of alternative investment funds (hedge funds, private equity funds, etc.) |
| Investor Eligibility | Open to retail investors | Typically restricted to professional and institutional investors |
| Investment Restrictions | Imposes strict diversification and liquidity requirements, | Allows for a broader range of investment strategies and asset classes |
| Leverage | Limited leverage allowed | Allows for greater leverage in certain circumstances |
| Risk Management | Requires robust risk management processes | Requires managers to implement risk management systems and procedures |
| Depositary Requirement | Mandatory appointment of a depositary for safekeeping of assets | Mandatory appointment of a depositary for monitoring cash flows and oversight of assets |
| Passporting | UCITS funds can be marketed across EU member states under a single authorization | AIFMD allows for the passporting of alternative investment fund managers |
| Marketing Restrictions | UCITS can be marketed to retail investors throughout the EU | Marketing of AIFs may be subject to certain restrictions and requirements |
| Transparency | Emphasizes disclosure and transparency to investors | Requires disclosure to investors and regulators, but may be less stringent than UCITS |
| Liquidity Management | Emphasizes liquidity management to meet redemption demands | Requires managers to implement liquidity management processes tailored to the fund's strategy |
| Regulatory Authority | National competent authorities (NCAs) and ESMA for certain aspects | National competent authorities (NCAs) for regulation and oversight |