The regulatory landscape for investment funds for non-retail investors in the European Union is largely governed by the Alternative Investment Fund Managers Directive (AIFMD). This regime imposes extensive obligations on fund managers seeking to raise and manage capital across the EU, particularly regarding investor protection, risk management, and transparency. However, not all investment vehicles fall within its scope. Understanding how AIFMD applies – and how it can be lawfully avoided through alternative structuring – is crucial for fund sponsors, asset managers, legal advisors, and institutional investors operating in or targeting the European market.

Scope of Application of AIFMD

The Alternative Investment Fund Managers Directive (AIFMD) establishes a comprehensive regulatory regime for Alternative Investment Funds (AIFs) within the European Union. Under Article 4(1)(a), an AIF is defined as a collective investment undertaking which meets the following requirements:

• Raising of capital from a number of investors,
• Investment of the capital in accordance with a defined investment policy;
• For the benefit of those investors.

Importantly, to fall within the AIFMD regime, an entity must meet all three elements of this definition.

Entities that fail to meet even one of these criteria may not be classified as AIFs and thus avoid direct regulation under AIFMD. This has led to the strategic use of alternative structures designed specifically to fall outside the directive’s scope.

Who Does the EU AIFMD Apply To? The AIFMD applies to both EU and non-EU Alternative Investment Fund Managers (AIFMs).

• EU AIFMs must comply if they manage one or more AIFs within the EU.
• Non-EU AIFMs are caught if they market AIFs to EU investors, subject to local private placement regimes (Article 42) and conditions including regulatory cooperation agreements and transparency obligations.

Compliance involves registration or full authorisation, depending on asset thresholds, and entails significant requirements relating to governance, risk management, capital, valuation, and disclosure.

What are the AIFMD thresholds and what do they mean for fund managers, especially in Malta?

The AIFMD sets out regulatory thresholds that impact fund managers operating within Malta and the broader EU.

100 million vs. 500 million Threshold

Under the Alternative Investment Fund Managers Directive (AIFMD), fund managers must determine whether they fall within the scope of full authorisation or qualify for the lighter registration regime. The regulatory threshold is a critical determinant:

• The default threshold is €100 million in assets under management (AUM).
• This can be increased to €500 million if the AIFs are unleveraged and investors are locked in for a minimum of five years.

AIFMs that remain below the threshold may operate as registered AIFMs, subject only to:

• Basic regulatory reporting to the national competent authority, such as the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg, or the Malta Financial Services Authority (MFSA);
• Limited capital requirements and disclosure obligations;
• No access to the AIFMD marketing or management passports.

Strategic Trade-Offs for Fund Managers

Fund managers considering EU Member States such as Luxembourg or Malta as a launch jurisdiction must weigh the trade-offs:

• Remaining below the threshold allows for lower compliance costs and administrative simplicity.
• Opting into full authorisation permits EU-wide distribution and institutional investor access.

EU Member States such as Luxembourg and Malta offer regulatory frameworks that support both paths, with user-friendly regimes that facilitate seamless transition from registered to authorised status as the fund scales. These jurisdictions are therefore well-suited to emerging managers and spin-out teams aiming to build a long-term fund platform.

Main Regulatory Requirements Under the AIFMD

Key requirements imposed on AIFMs include:

• Organisational governance (Art. 18);
• Risk and liquidity management (Arts. 15 and 16);
• Remuneration policies aligned with risk (Art. 13);
• Independent valuation procedures (Art. 19);
• Regular reporting to competent authorities (Art. 24); and,
• Restrictions on delegation (Art. 20).

The overall goal is to enhance investor protection and systemic stability by imposing robust risk management and governance standards.

Alternative Structures That May Avoid AIFMD Regulation

Entities that fall outside the AIF definition, either due to their structure or purpose, may avoid the scope of AIFMD. Below are some alternatives often used in practice:

Securitisation Vehicles

• Vehicles that issue tranched debt or asset-backed securities and expose investors to credit risk rather than equity-like returns.
• Governed by the Securitisation Regulation (EU) 2017/2402, such vehicles are explicitly excluded from AIFMD.
• Luxembourg and Irish securitisation companies are commonly used.

Holding Companies

• Entities with a commercial or industrial strategy that hold controlling stakes in subsidiaries.
• Not classified as AIFs as long as they are not formed for the sole purpose of collective investment.
• Exempt under Article 2(3)(a) AIFMD.

Joint Ventures and Operating Companies

• Structures where each partner contributes capital and has operational control or influence.
• If the arrangement is not marketed as a pooled investment and lacks a defined investment policy for external investors, it typically avoids AIF qualification.

Managed Accounts / Separately Managed Mandates

• Portfolios managed for a single investor do not qualify as collective investment undertakings.
• Institutional clients often use these to retain direct control and avoid AIF classification.

Non-EU Funds with No EU Marketing

• A Cayman or BVI fund may be outside AIFMD if it does not market to EU investors.
• Reverse solicitation (where an EU investor initiates contact) must be carefully documented to avoid breaching marketing restrictions.

Debt Issuance Platforms

• Vehicles that issue debt instruments, including bonds or structured notes, and do not involve pooling of investor capital.
• Used to raise capital without triggering AIF status.

Foundations or Trusts (Specific to Jurisdiction)

• Structures not operating as collective investment undertakings and often used for estate planning, charitable purposes, or non-investment functions.
• Must not be used to circumvent regulation or they may be re-characterised.

Regulatory Analysis and Considerations

The classification of a vehicle as an AIF is primarily functional, not formal. The European Securities and Markets Authority (ESMA) and national regulators assess each structure based on its substantive features. Regulatory arbitrage is possible but increasingly scrutinised, especially where alternative structures mimic investment fund behaviour without appropriate oversight.

Legal and compliance professionals must carefully review:

• Fund documentation and offering memoranda,
• Investor control rights and redemption terms,
• Purpose and operational activity of the vehicle,
• Marketing materials and distribution strategies.

Mischaracterisation may lead to enforcement action, fines, or forced restructuring.

Conclusion

While the AIFMD imposes extensive requirements on fund managers, a range of alternative structures exist that may lawfully fall outside its scope. From securitisation vehicles and holding companies to managed accounts and joint ventures, these models offer flexibility – but only if properly designed and implemented. Investors and managers must remain vigilant about compliance risk, particularly as EU regulators continue to tighten oversight on perceived circumvention.

If you are assessing the legal classification of a financial structure under the AIFMD or exploring strategic alternatives to fund formation and cross-border capital raising within the EU, contact LINDEMANNLAW for specialist legal guidance. Our team of experienced EU and international investment funds and regulatory lawyers provide tailored advice to private clients, family offices, fund sponsors, and institutions navigating the AIFMD and related European investment regimes.

Disclaimer: This publication is for general information purposes only and does not constitute legal advice. For legal advice on your specific situation, please contact us directly.