On 11 November 2010, the European Parliament (the “EU Parliament”) voted to approve the controversial new Directive on Alternative Investment Fund Managers (the “AIFM Directive”) by an overwhelming majority (513 to 92 votes),1 concluding many months of highly politicised and contentious negotiations among the European Union (“EU”) regulators, individual Member States, and the industry.2

The AIFM Directive forms part of a number of EU regulatory initiatives stemming from the global financial crisis and aimed at improving investor protection and oversight of systemic risk. At the same time, it is also designed to create a single EU market for alternative investment funds (“AIFs”), similar to one which exists for undertakings for collective investments in transferable securities (“UCITS”). As such, it introduces a harmonised regulatory regime for the management and marketing of AIFs to professional investors in the EU, to be implemented by all Member States from January 2013.

The full implications of the AIFM Directive will largely depend on the Level 2 implementing measures (“delegated acts”) which the European Commission (the “Commission”) is mandated to adopt over the next four years, on the basis of advice from the new European Securities and Markets Authority (“ESMA”),3 the successor to the Committee of European Securities Regulators.

Nevertheless, managers of hedge funds, private equity, and other firms falling within the scope of the AIFM Directive would be well-advised to start preparing for the fundamental changes which will impact their operations and consider their compliance costs and options, including possible restructuring.