Fiduciary Duties of a Fund Manager under the Alternative Investment Fund Managers Directive
Worldwide financial crisis which started in 2008 has prompted significant legal response on the EU level. One of the areas EU institutions have been proactive in was seeking to establish more thorough regulation of international financial resources. Particular attention was driven to the hedge funds, as they were believed to follow short-sighted strategies for investment. One of the first and most significant EU legislation adopted in regard to the control of hedge funds was the Alternative Investment Fund Managers (AIFM) directive adopted as early as November 2010. The paper provides the background and (quite heated) discussion which precluded adoption of the directive. It then goes on over its main objectives and provision. Particular attention will be paid to the way fiduciary duties of fund managers are ensured under the new European law. The measures adopted in the Directive seem to help transparency and accountability of the fund managers, thus protecting the interests of the investors, however the exact wording on the fiduciary duties of the managers is not specific enough to guarantee their compliance.
Before financial crisis regulation of alternative investment funds within g European Union on a supranational level was virtually non-existent. The period of 2008-2009 highlighted a need for improving the legislation in various areas of economy, including hedge funds. AIFM Directive was a product of a summit of G20 countries in 2009 in London, where EU institutions have committed to Strengthening the Financial System Declaration. This included participating in a worldwide regulatory effort and extending oversight to all systemically important financial instruments. Regarding the AIFM directive itself, European Commission justified its adoption in the explanatory document, claiming that hedge funds have become “significant actors in the European financial system, managing a large quantity of assets, accounting for a significant proportion of trading activity in financial markets; and constituting an important source of counterparty risk for other market participants" and that they had "contributed to the build-up of leverage in the financial system, the consequences of which for the stability of financial markets became apparent when leverage in the hedge fund sector was rapidly unwound during the crisis". The Directive was therefore thought to counter the perilous situation described above, which could have potentially caused even more damages in the times of financial crisis.
The final approval of the AIFM Directive by European Parliament and European Council took place in November 2010. It had certain deviations from the original proposal submitted by the European Commission, a proposal which, if adopted, was believed to have a potential to severely hamper the ability of European investors to invest in products managed or structured outside the EU. The main or “Level 1” text of the Directive was available by June 2011, with EU member states required to implement the Directive in their individual countries two years from the date the text is released (thus June 2013). Level 2 legislation has been …
