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New Regulations with Investing in Private Companies

private companySince the implementation of the Alternative Investment Fund Managers Directive (AIFMD) in Europe, there have been many changes all over the world regarding the regulations governing alternative investments. Investment companies will be subject to a number of new regulations.

Reporting and Disclosure Changes

With the implementation of the AIFMD, anyone who does business with investors in Europe will now need to provide pre-investment disclosures to investors, along with quarterly updates to the disclosures if there are any changes to the business. Investors will also need to be supplied with annual reports, along with regular reports that are given to the E.U. National Register. The purpose of these reporting and disclosure changes is to ensure investors are given comprehensive information before deciding to invest in a company.

Monitoring and Oversight Changes

Since going into effect on July 22, 2013, the AIFMD has made great strides in increasing the monitoring and oversights regarding investments in Europe. The federal depository now tracks all investments and makes certain that all business transactions are reconciled. Any inconsistent or suspicious movements will be investigated immediately, thus protecting an investor’s money.

Real Estate Specific Changes

Following the sub-prime housing crisis in the United States, the AIFMD is determined to ensure that investors will not again be in a position where they are able to invest in property without the proper financial documentation. Some of the real estate specific changes include greater transparency on the part of lenders and investors regarding all financial matters and greater accountability of managers and companies.                   

U.S. Asset Manager Changes

There are some specific regulations regarding U.S. based companies doing business in Europe. Some of the new regulations include changes to depository and risk management requirements. In addition, U.S. based companies will need to follow the same guidelines that companies in Europe follow regarding compensation and capital requirements. U.S. based companies will also need to register in order to market with the E.U. member state they wish to do business in.

These new legal and legislative regulations affect not only hedge funds, private equity, and other alternative investment vehicles based in Europe, but they affect those in the U.S. as well. Anyone who markets to investors in Europe will need to be aware of the changes in the regulations since the implementation of the Alternative Investment Fund Managers Directive. These new requirements and regulations will only apply if you are managing or marketing in Europe, but the new requirements are designed to increase investors’ confidence in the oversight and monitoring of businesses.

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