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September 13, 2014

European Securities and Markets Authority (ESMA) Issues Alternative Investment Fund Managers (AIFM) Remuneration Guidelines

On February 11, the European Securities and Markets Authority (ESMA) published final guidelines (Guidelines) on remuneration of alternative investment fund managers (AIFMs). The Guidelines follow from, and add detail to, the remuneration provisions contained in Annex II of the EU Alternative Investment Fund Managers Directive (2011/61/EU). The Guidelines will apply to managers of alternative investment funds (AIFs). AIFs include hedge funds, private equity funds and real estate funds. Non-EU AIFMs which market AIFs to EU investors under the Alternative Investment Fund Managers Directive’s marketing passport will also be subject to the guidelines after a transitional period.

ESMA summarized the Guidelines as requiring AIFMs to introduce sound and prudent remuneration policies and organizational structures designed to avoid conflicts of interest that may lead to excessive risk taking.

The Guidelines apply to “identified staff whose professional activities might have material impact on the AIF’s risk profile.” Identified staff include executive and non-executive board members, senior management, control functions (including risk management, compliance internal audit and similar functions) and risk takers (any staff member who can “exert material influence” on the risk profile of an AIFM or the AIF it manages). Also included is any employee whose total remuneration is in the same bracket as the staff identified in the previous sentence.

For the purpose of the Guidelines, remuneration consists of:

i. all forms of payments or benefits paid by the AIFM,

ii. any amount paid by the AIF itself, including carried interest, and

iii. any transfer of units or shares in the AIF,

in each case paid or given in exchange for professional services rendered by the identified staff of the AIFM.

The board or other governing body of each AIFM is required to ensure that sound and prudent remuneration policies/structures are in place and are not circumvented.

The Guidelines will apply beginning July 22, 2013, subject to the AIFMD’s transitional provisions.

©2014 Katten Muchin Rosenman LLP

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About this Author

Partner

Edward Black, a partner in Katten Muchin Rosenman UK LLP, has a wide range of funds and financial services experience. He has acted for securities, commodities and derivatives brokers and dealers, banks, investment banks and investment managers for over 20 years. This has led to substantial involvement in commercial and transactional work in the financial services field as well as extensive regulatory expertise, and to significant experience with employment law matters.

+44 2 20 7776 7624
Tim Aron, Katten Muchin Law Firm, Finance Attorney
Partner

Tim Aron, a partner in Katten Muchin Rosenman UK LLP, specialises in the regulation of financial services firms, clearing houses and trading platforms. He advises on a wide range of regulatory matters including securities and derivatives transactions, safe-keeping of money and assets, systems and controls and other high level standards, conduct of business rules, and the restructuring, acquisition and disposal of entities in the financial sector.

+44.0.20.7776.7627