Across most EU jurisdictions, either the management company or the AIF needs to be licensed and requires some form of approval process. The Netherlands, however, is the exception to the rule. Under its light regime, neither needs to be licensed or supervised at all. This makes it a fast, efficient and cost-effective option for start-up managers.
Provided the manager runs an AIF with less than EUR100 million in AUM, he can avoid licensing and apply for an exemption, although he will be subject to certain registration and reporting obligations. For example, the manager must include a selling restriction in a prescribed form in all advertisements and documents announcing the offer of participations in their fund.
Taking this registration route, all the manager needs to do is register the management company with the Dutch regulator, the Authority for the Financial Markets (`Autoriteit Financiële Markten' or `AFM') and pay a one-off fee of EUR1,500.
"There is no ongoing supervision by the AFM and the light regime offers a fair amount of flexibility," says Peter Jakubicka (pictured), Business Development Manager at Circle Partners, an independent fund administrator that guides start-up managers through the process of bringing a new fund to market in all major fund jurisdictions. "The substance required is that the management company has a registered office in the Netherlands, which we can arrange for as part of our service package."
The other option is to go through the licensing process and become a Dutch AIFM, even if the manager is de minimis, to avail of the passport under the full scope of AIFMD. This is mandatory once the AIF's assets exceed EUR100 million (open ended), or EUR500 million (close ended).
"Once the threshold is exceeded the fund structure remains intact but the management company then faces two options: one is to go through the approval process to obtain its own Dutch AIFM license. The second is to appoint a third party AIFM, who offers its license to support the ongoing activities of the fund.
"A Dutch AIFM will then be subject to ongoing regulatory supervision by the regulator. Once the manager has obtained a license they are free to manage either a Dutch AIF, or an AIF domiciled in any other EU Member State, and benefit fully from the passporting regime. While remaining de minimis, once you know that your AUM is likely to exceed EUR100 million, you can commence the licensing process for the management company and continue to manage the AIF during the transition phase from sub-threshold to full AIFMD compliance," explains Jakubicka.
Circle helps with all the paperwork and the licensing application for the management company, utilising its network of local law firms. In his perception, Jakubicka says that most managers, when they cross the threshold to become a full-scope AIFM, seek to appoint a third party AIFM.
"Some managers we know are in the process of obtaining their own license but it is quite an expensive and cumbersome process," confirms Jakubicka.
In terms of structuring options, the most common option is to set up the AIF as an FGR, in the form of an open-ended fund structure. This would be the choice for hedge funds, whereas a Dutch limited partnership or commanditaire vennootschap (`CV') would ordinarily be used for real estate and private equity funds.
"The Netherlands is an attractive option because it has a stable economic and political climate, with excellent infrastructure. In addition, it has a good number of bilateral tax treaties with EU and non-EU countries and a deep pool of industry professionals working in financial services," concludes Jakubicka.
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