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The AIFMD’s definition of “managing AIFs” means that an entity performing either portfolio management or risk management for an AIF could be the AIFM unless the performance of either function is done under a delegation arrangement with the AIFM in accordance with the AIFMD. The first task would therefore be to list all the entities in the structure that are responsible for performing either of these functions. The AIF itself may need to be included in this list.
The AIFMD provides that the AIFM shall be either an external manager, which is the legal person appointed by the AIF or on behalf of the AIF and which through this appointment is responsible for managing the AIF (an “external AIFM”), or, where the legal form of the AIF permits an internal management and where the AIF’s governing body chooses not to appoint an external AIFM, the AIF itself (an “internally managed AIF”).
The final task would be to review the delegation arrangements in the structure relating to management functions.
Whilst an AIFM is permitted to delegate to third parties the task of carrying out functions on its behalf, an AIFM is not permitted to delegate its functions to the extent that, in essence, it can no longer be considered to be the AIFM and to the extent that it becomes a “letter-box entity”.
When playing the game of spot the AIFM, therefore, a potential suspect can be discounted if it is in fact a “letterbox entity”.
The EU Commission will define “letter-box entity” in its Level 2 measures later this year and, for the moment, there are only indications as to how this fundamental term will be defined.