{"id":148100,"date":"2026-09-08T08:53:11","date_gmt":"2026-09-08T08:53:11","guid":{"rendered":"https:\/\/my.legal500.com\/guides\/?post_type=comparative_guide&#038;p=148100"},"modified":"2026-09-08T08:53:11","modified_gmt":"2026-09-08T08:53:11","slug":"united-kingdom-alternative-investment-funding","status":"publish","type":"comparative_guide","link":"https:\/\/my.legal500.com\/guides\/chapter\/united-kingdom-alternative-investment-funding\/","title":{"rendered":"United Kingdom: Alternative Investment Funding"},"content":{"rendered":"","protected":false},"template":"","class_list":["post-148100","comparative_guide","type-comparative_guide","status-publish","hentry","guides-alternative-investment-funds","jurisdictions-united-kingdom"],"acf":[],"appp":{"post_list":{"below_title":"<div class=\"guide-author-details\"><span class=\"guide-author\">DLA Piper<\/span><span class=\"guide-author-logo\"><img src=\"https:\/\/my.legal500.com\/guides\/wp-content\/uploads\/sites\/1\/2019\/03\/DLA_Piper_A4US-Letter_Black_RGB.jpg\"\/><\/span><\/div>"},"post_detail":{"above_title":"<div class=\"guide-author-details\"><span class=\"guide-author\">DLA Piper<\/span><span class=\"guide-author-logo\"><img src=\"https:\/\/my.legal500.com\/guides\/wp-content\/uploads\/sites\/1\/2019\/03\/DLA_Piper_A4US-Letter_Black_RGB.jpg\"\/><\/span><\/div>","below_title":"<span class=\"guide-intro\">This country specific Q&amp;A provides an overview of Alternative Investment Funding laws and regulations applicable in United Kingdom<\/span><div class=\"guide-content\"><div class=\"filter\">\r\n\r\n\t\t\t\t<input type=\"text\" placeholder=\"Search questions and answers...\" class=\"filter-container__search-field\">\r\n\t\t\t<\/div>\r\n\r\n\t\t\t\r\n\r\n\r\n\t\t\t<ol class=\"custom-counter\">\r\n\r\n\t\t\t\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the principal legal structures used for Alternative Investment Funds?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The choice of structure is typically driven by the profile of the target investor base, the asset class and relevant tax and regulatory drivers. For managers targeting a pan-European investor base, legal structures that facilitate ease of access to those investors via European marketing passports have become a principal feature of the private funds market \u2013 with Luxembourg and Ireland domiciled fund vehicles becoming popular for that reason. More generally, fund products aimed at an international investor base require tax-neutrality and optionality &#8211; with managers more frequently offering both tax transparent and tax opaque vehicles to cater for a more diverse and global investor base, as well as different tax regimes.<\/p>\n<p>For managers selecting the UK as the domicile of choice for their funds, the English limited partnership remains the most common structure. English limited partnerships may take a standard form or, since 2017, English limited partnerships that qualify as collective investment schemes may be registered as private fund limited partnerships (PFLP). Registration as a PFLP removes certain filing requirements, removes some restrictions relating to the distribution of capital during the life of the fund, and provides some certainty regarding participation by limited partners in certain decisions relating to the fund. English limited partnerships are not regulated vehicles, but if used as a vehicle to pool third-party capital from a number of investors, will likely qualify as an alternative investment fund (AIF) and\/or a collective investment scheme (CIS) \u2013 requiring management by an authorised manager or operator.<\/p>\n<p>Domestic regulated fund products (principally targeting a retail investor base) sit alongside English limited partnerships and other unregulated fund vehicles (principally targeting a professional investor base) in the UK market. UK regulated fund products comprise UCITS schemes, non-UCITS retail scheme (NURS), qualified investor schemes (QIS) and the Long-Term Asset Fund (LTAF). \u00a0Within the above categories, common specialist forms include: fund of alternative investment funds (FAIF), property authorised investment funds (PAIF), charity authorised investment funds (CAIF) and money market funds (MMF). There are currently three UK fund structures that can be authorised by the FCA: (1) authorised unit trusts (AUT); (2) open-ended investment companies (OEICs) and authorised contractual schemes.<\/p>\n<p>In a competitive fundraising environment, specific investor requirements will frequently contribute to the choice of preferred legal structure. Investors that are US taxpayers have generally preferred pass-through treatment in order to preserve the tax status of income received by the partnership and so favour partnerships (or entities that elect to be treated as partnerships for US federal income tax purposes). US tax-exempt investors may prefer a corporate or &#8216;tax opaque&#8217; vehicle (or an entity that elects corporate treatment) so as to manage their US tax exposure and avoid US filing burden.<\/p>\n<p>In this context, where a strategy is marketed globally, a master-feeder and\/or parallel fund arrangement is common, enabling different investor categories to participate in the structure through appropriate entry points.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Does a structure provide limited liability to the investors? If so, how is this achieved?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes.<\/p>\n<p>The mechanism by which it is delivered depends on the vehicle.<\/p>\n<p>In an English limited partnership, an investor\u2019s exposure is capped at the capital it has committed, provided that, as a limited partner, it does not take part in the management of the partnership. For PFLPs, legislation now provides a \u201cwhite list\u201d of permitted items on which limited partners may engage without threatening their limited liability. For standard English limited partnerships, that white list is not prescribed, albeit provides a useful guide.<\/p>\n<p>If a fund takes the form of a UK corporate vehicle, limited liability arises as a matter of English law; a shareholder will only be liable for the amount paid up, or agreed to be paid up, on its shares.<\/p>\n<p>Funds may also be structured to ring-fence specific assets and liabilities. For example, fund interests may be organised by class, with each class corresponding to separate underlying investments.<\/p>\n<p>Where recycling of distributions is permitted in fund documents (meaning an investor&#8217;s capital remains at risk after it has been distributed \/ returned to the investor), an investor may be at risk for an aggregate amount greater than its original commitment. For this reason, recycling provisions (including any guard rails) are frequently subject to attention and negotiation.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is there a market preference and\/or most preferred structure? Does it depend on asset class or investment strategy?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There is no single preferred structure. Different structures are preferred depending on the investor base and investment strategy of the applicable fund.\u00a0 Onshore European fund structures provide access to the EU&#8217;s marketing passport, and hence are popular amongst managers marketing widely to European investors. However, operating an onshore fund can impose additional regulatory burdens or operational costs and complexities for managers. For nascent managers (or new product lines), it is not uncommon for offshore structures to be utilised initially in order to minimise operational and regulatory complexity, with an onshore fund structure used by more established players and\/or for later products and fund vintages.<\/p>\n<p>For managers raising capital from multiple jurisdictions and investors internationally, master-feeder and\/or parallel fund arrangements are common in order to cater for divergent tax, regulatory or investor specific needs. Such arrangements can also be used to (1) provide multiple currency options for investors without the legal and operational complexity of running multiple currencies through a single vehicle; (2) provide different leverage and hedging exposures.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Does the regulatory regime distinguish between open-ended and closed-ended Alternative Investment Funds (or otherwise differentiate between different types of funds or strategies (e.g. private equity vs. hedge)) and, if so, how?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes, but only to a limited degree. Among UK authorised funds, the NURS, LTAF and QIS must each be open-ended.<\/p>\n<p>Alternative investment fund managers are regulated in the EU under the Alternative Investment Fund Managers Directive. A substantial update, AIFMD II, recently came into force. AIFMD II has resulted in increasingly divergent requirements for open-ended and closed-ended AIFs in the EU. The UK has not adopted the AIFMD II updates and is instead consulting on its own future reforms to the UK AIFM Regime.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any limits on the manager\u2019s ability to restrict redemptions? What factors determine the degree of liquidity that a manager offers investors of an Alternative Investment Fund?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The FCA Handbook imposes general liquidity-management obligations on a full-scope UK AIFM in respect of all of its AIFs, chiefly to:<\/p>\n<ul>\n<li>ensure that each AIF\u2019s investment strategy, liquidity profile and redemption policy remain consistent with one another; and<a href=\"https:\/\/www.handbook.fca.org.uk\/handbook\/glossary\/G3090.html\">https:\/\/www.handbook.fca.org.uk\/handbook\/glossary\/G3090.html<\/a><\/li>\n<li>for any AIF that is leveraged or open-ended:<\/li>\n<\/ul>\n<p>(a) operate an appropriate liquidity management system and adopt procedures which enable it to monitor the liquidity risk of the AIF and ensure that the liquidity profile of the investments of the AIF complies with the AIF&#8217;s underlying obligations; and<\/p>\n<p>(b) regularly conduct stress tests, under normal and exceptional liquidity conditions, which enable it to assess the liquidity risk of the AIF and monitor that risk.<\/p>\n<p>The rules for authorised AIFs are generally much more prescriptive.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are potential tools that a manager may use to manage illiquidity risks regarding the portfolio of its Alternative Investment Fund?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>For closed-ended funds with a fixed term, the ability to manage illiquidity risks is limited, with investors exposed to illiquidity risks for the duration of the fund.<\/p>\n<p>For open-ended funds, a broad range of liquidity management tools are typical. These include:<\/p>\n<ul>\n<li>hard or soft lock-up periods;<\/li>\n<li>redemptions in kind;<\/li>\n<li>redemption notice periods (which may be extended by certain triggers);<\/li>\n<li>increased redemption fees on shortened notice periods;<\/li>\n<li>specified redemption \/ dealing days;<\/li>\n<li>fund- or investor-level gates;<\/li>\n<li>side pockets;<\/li>\n<li>swing pricing;<\/li>\n<li>anti-dilution levies; and<\/li>\n<li>suspensions (though this can trigger notification and other requirements).<\/li>\n<\/ul>\n<p>Use of certain of the foregoing is restricted or prohibited in respect of certain authorised AIFs.<\/p>\n<p>As the UK has not currently implemented AIFMD II, the EU requirement for AIFMs managing open-ended AIFs\u00a0to select at least two liquidity management tools from a harmonised list does not currently apply in the UK. The FCA is continuing to consult on liquidity risk management for collective investment schemes, and (for example) is expected to issue new requirements for NURS to have anti-dilution tools available.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any restrictions on transfers of investors\u2019 interests?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>In a closed-ended fund, the transfer provisions in the fund governing documentation will govern the transfer process. Typically, transfers to third party, unconnected investors require the consent of the general partner \/ manager, which enables the fund to ensure that the relevant transferee is appropriate (including for anti-money laundering laws). In some cases, the governing documents may grant other, existing limited partners the right to make a first offer or a right of first refusal in circumstances where third-party transfers are sought. Generally speaking, transfers to affiliate or connected group entities will be permissible subject to safeguards regarding potential regulatory and tax risks, as well as potential onward transfers.<\/p>\n<p>Sponsors should, in addition, be cognisant of the tax implications of transfers, in particular the US publicly traded partnership rules and implications for &#8220;effectively connected income&#8221; and US withholding obligations.<\/p>\n<p>For open-ended funds, units or shares are more freely transferable given their nature. Again, fund documentation will outline any safeguards required by the manager in respect of secondary transfers. Unlike closed-ended funds, investor liquidity may also be achieved through the redemption of fund interests \u2013 with the frequency and terms of redemption outlined in the fund documentation. For funds with illiquid assets (such as real estate), requests for redemptions may provide additional challenges, sometimes leading to the suspension of redemptions during a market downturn.<\/p>\n<p>Particular transfer requirements may apply to other forms of authorised fund.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any other limitations on a manager\u2019s ability to manage its funds (e.g., diversification requirements)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>For private, unauthorised funds established in the UK, there are no restrictions under applicable law in relation to borrowing or investment concentration. Limitations on both are, however, common market practice and are considered by many investors to be important for risk management. In addition, fund financing providers will typically constrain the borrowing that may be undertaken by a fund, by reference to the commitments of investors or the assets held by the fund.<\/p>\n<p>Overseas AIFs managed by UK managers will be subject to regulation in their jurisdiction of establishment. Such regulations need to be considered, particularly in the context of forming single asset vehicles. Leverage and diversification limits vary across vehicle types and jurisdictions, though in the most common funds jurisdictions are generally more permissive or do not apply to funds that are only open to institutional investors. AIFMD II has, for European funds, imposed leverage limits for &#8220;loan-originating&#8221; AIFs.<\/p>\n<p>For AIFs authorised in the UK, specific rules apply (including with respect to risk-spreading or diversification, eligible assets and the use of leverage).<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What is the local tax treatment of (a) resident, (b) non-resident, (c) pension fund and (d) sovereign wealth fund investors (or any other common investor type) in Alternative Investment Funds? Does the tax status or preference of investors or the tax treatment of the target investments primarily dictate the structure of the Alternative Investment Fund?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>As a general principle, funds are structured to achieve tax neutrality for investors, so that investors should not be subject to substantially more tax than if they had invested direct into the underlying fund investments. To that end, most alternative investment funds use tax-transparent vehicles, such as limited partnerships, so that the fund itself is not subject to tax, and income, gains and distributions paid to the fund are treated as arising directly to investors. Investors are therefore responsible for any tax filing and payment obligations in their jurisdiction of residence and must determine the character of the underlying income and gains when calculating their liabilities.<\/p>\n<p>Fund structures are also influenced by investor profiles, target jurisdictions and asset classes.\u00a0 Fund managers frequently utilise feeder vehicles, alternative investment vehicles and holding companies to address potential tax issues.\u00a0 For example, in a US fund, many non-US investors will prefer to invest through an entity treated as a corporation for US tax purposes (blocker) in order to prevent US tax payment and filing obligations (ECI) arising to the investors.\u00a0 There are similar rules for sovereign wealth funds, and sovereigns will wish to ensure that they are not subject to US commercial activity income (CAI) in order to preserve their tax exempt status, and similarly may require a blocker vehicle.\u00a0 In a UK context, pension funds typically seek to avoid receiving trading income, and will also wish to ensure that they are &#8216;blocked&#8217; against trading profits.<\/p>\n<p>Below the Fund, tax plays an important role in the structuring.\u00a0 For example, repatriating interest and dividends from underlying investment companies can give rise to withholding tax liabilities, and funds will look to rely on withholding tax treaties and EU Directives in order to mitigate this.\u00a0 In recent years, tax authorities in a number of European jurisdictions have started paying closer attention to ensuring that substance considerations are met when relying on Treaty or EU Directives.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What rights do investors typically have and what restrictions are investors typically subject to with respect to the management or operations of the Alternative Investment Fund?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>In most instances, AIFs are passive investment vehicles and investors have no role in their management or operations. This is both a commercial expectation as well as, in many cases, a legal requirement in order to preserve limited liability of the investor.<\/p>\n<p>Investors in an English limited partnership generally do not receive management or voting rights on the day-to-day management of the fund. Voting rights are typically provided for all investors on limited, key issues such as material amendments to the governing documentation. In addition, significant or other strategic investors may be granted seats on an advisory committee, which is typically empowered to approve other specific issues such as valuations disputes, conflicts of interest, or extensions to time periods of the fund. Further specific rights may be offered to investors for commercial reasons (e.g. to a cornerstone investor), but must always be considered in the context of the legal framework.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Where customization of Alternative Investment Funds is required by investors, what types of legal structures are most commonly used?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Aside from the structures discussed under questions 1.1-1.3 above, a range of bespoke products are now offered to investors, including:<\/p>\n<ul>\n<li>where investors require liquidity before realisation of a fund&#8217;s investments, a continuation vehicle may be formed to act as the purchaser;<\/li>\n<li>joint venture and fund hybrid vehicles;<\/li>\n<li>club arrangements, bringing together a small group of investors;<\/li>\n<li>overage funds, which may receive portions of portfolio investments that exceed the risk limits for the relevant &#8220;main fund&#8221;;<\/li>\n<li>pledge funds, in which investors commit on a deal-by-deal basis and thus retain far more discretion compared to &#8220;blind pool&#8221; funds;<\/li>\n<li>annex or top-up funds, which typically provide additional exposure to a sub-sect of another fund&#8217;s investment strategy;<\/li>\n<li>funds-of-one established for a single investor; and<\/li>\n<li>umbrella funds, which may offer reporting or other efficiencies for a single, underlying investor.<\/li>\n<\/ul>\n<p>Partnership vehicles are common choices for these structures as they permit a high level of flexibility with respect to the rights and obligations attaching to investors&#8217; interests. However, there is no one-size-fits-all and relevant tax, regulatory and investor requirements should be considered to ensure the structure is fit-for-purpose.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are managers or advisers to Alternative Investment Funds required to be licensed, authorised or regulated by a regulatory body?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Any UK entity that acts as an AIFM to an AIF and thus provides portfolio management and\/or risk management services, must be authorised by the FCA.<\/p>\n<p>FCA requirements for authorisation also apply to a UK entity that acts in a portfolio manager or investment advisor capacity under the delegation arrangements of an overseas AIF with either a UK or non-UK AIFM. \u00a0\u00a0Note that UK AIFMs are required to seek FCA approval to delegate portfolio and risk management functions to an entity that is not subject to FCA supervision. A notification is only required in respect of a delegation of either function to an entity subject to FCA supervision.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are Alternative Investment Funds themselves required to be licensed, authorised or regulated by a regulatory body?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The QIS, NURS, LTIF and LTAFs are all directly authorised by the FCA.<\/p>\n<p>Private, unauthorised funds \u2013 whether formed overseas or in the UK (such as those formed as an English limited partnership or PFLP) \u2013 are not, by contrast, required to be FCA-authorised. Indirect FCA supervision is effected through the regulation of the managers or advisors of such funds.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Does the Alternative Investment Fund require a manager or advisor to be domiciled in the same jurisdiction as the Alternative Investment Fund itself?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>It is typical for UK managers to establish overseas AIFs and to be appointed to carry out the portfolio \/ investment management function via delegation arrangements. An FCA-authorised UK AIFM may act as the AIFM of a third country AIF, subject to the provisions of AIFMD and the UK implementing legislation. In practice, it is more common to be appointed as investment advisor or portfolio manager, due to possible regulatory and tax complications.<\/p>\n<p>Acting as AIFM to an FCA-authorised UK AIF (a NURS, QIS, LTAF or LTIF) requires FCA authorisation.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there local residence or other local qualification or substance requirements for the Alternative Investment Fund and\/or the manager and\/or the advisor to the fund?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The FCA expect UK authorised or registered AIFMs to undertake decision making on the management of the entity&#8217;s business, portfolios, distributions and oversight in the UK, on a day to day basis.<\/p>\n<p>It is critical that local residency and substance requirements in each jurisdiction of establishment for any fund vehicle are properly addressed. This helps to ensure the intended tax treatment under the laws of that jurisdiction is duly received. In practice, this is typically achieved in overseas AIF structures by the appointment of an administrator and independent directors in the jurisdiction.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What service providers are required by applicable law and regulation?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>A private equity fund formed as a traditional limited partnership or PFLP, not being FCA-authorised, has no mandatory local service providers. Typically, however, the sponsor will appoint a fund administrator to assist with the operation of the fund.<\/p>\n<p>A non-UK AIF managed by a UK manager must appoint a single AIFM or, if it is a self-managed corporate fund, designate its governing body as AIFM (commonly known as an &#8220;internally-managed AIF&#8221;).<\/p>\n<p>Where an overseas fund is registered for marketing via the UK National Private Placement Regime (NPPR) under Article 36 AIFMD (as implemented into UK legislation), the &#8220;depositary-lite&#8221; requirement is triggered, which means a depositary must be appointed to perform a limited oversight function.<\/p>\n<p>Either the AIFM or an external valuer must perform the valuation function for an AIF, though the former is much more common in practice.<\/p>\n<p>An OEIC, AUT or ACS must appoint both an authorised fund manager and a depositary or trustee, each established in the UK, independent of one another, and authorised by the FCA. In the case of an OEIC, the authorised fund manager is the authorised corporate director, which is usually the OEIC\u2019s sole director.<\/p>\n<p>In most cases the fund\u2019s annual report must be audited.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are local resident directors \/ trustees required?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>For offshore fund vehicles operating with UK advisers or sponsors, care must be taken with respect to the activities undertaken in the UK with respect to any fund vehicle in order to avoid onshoring the vehicle in the UK under central management and control tests, which can have adverse tax consequences. These risks are typically managed by ensuring that key decisions are made in the jurisdiction of establishment, for example documents are signed by directors present in that jurisdiction and directors do not routinely participate in board meetings from the UK.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What rules apply to foreign managers or advisers wishing to manage, advise, or otherwise operate funds domiciled in your jurisdiction?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>A broad range of activities relevant to the operation of an AIF are FCA-regulated activities in the UK, including managing an AIF, managing investments, operating a collective investment scheme, advising on investments and arranging deals in investments. A firm providing these services in the UK must either be FCA-authorised or fall within an applicable exemption, such as the overseas persons exemption which may be available for non-discretionary investment advice given to a UK recipient, provided the adviser does not advise from a permanent place of business in the UK. In addition, fund sponsors must be cognisant of the requirements of AIFMD as implemented in UK law. The FCA is currently consulting on streamlining the UK AIFM regime including\u00a0 introducing three categories of UK AIFMs determined by Net Asset Value to create a more proportionate and flexible regime, with implementation expected to take place in 2028.<\/p>\n<p>A fund sponsor must also be cognisant of the rules around operating a business in the UK more generally, such as the implications of establishing a branch in the UK.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the common enforcement risks that managers face with respect to the management of their Alternative Investment Funds?\u00a0<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The FCA has adopted new focuses for enforcement in recent times, particularly focused on market integrity, financial crime and consumer outcomes:<\/p>\n<ul>\n<li>failure to complete &#8220;know your client&#8221; checks and comply with anti-money laundering requirements and sanctions and financial crime requirements;<\/li>\n<li>failure to prevent fraud;<\/li>\n<li>inadequate oversight of outsourcing activities for customer due diligence (CDD) and enhanced due diligence (EDD);<\/li>\n<li>valuation accuracy;<\/li>\n<li>host AIFM \/ supervision models;<\/li>\n<li>inaccurate or incomplete investor disclosures (particularly around strategies, fees and leverage) and misleading communications;<\/li>\n<li>failure to uphold the FCA Consumer Duty by delivering fair value and monitoring consumer outcomes;<\/li>\n<li>failure to identify, manage or disclose conflicts of interest; and<\/li>\n<li>senior managers&#8217; conduct, candour and oversight.<\/li>\n<\/ul>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What is the typical level of management fee paid? Does it vary by asset type?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Management fees will vary depending on the asset type and management phase of the fund.<\/p>\n<p>The level of management fees typically reflects the degree of active management and expertise required for the relevant investment strategy. It is common for fee rates to vary by sector and for step-downs to apply after the investment period for closed-ended funds.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is a performance fee or carried interest typical? If so, does it commonly include a \u201chigh water mark\u201d, \u201churdle\u201d, \u201cwater-fall\u201d, \u201cpreferred return\u201d or other condition? If so, please explain.<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Performance fees and carried interest are typical in private funds, particularly in private equity, venture capital, real estate, and hedge fund structures. Carried interest is the share of profits (typically 20%) that the fund manager receives once investors have received their contributed capital back, often together with a preferred return. Performance fees serve a similar function in hedge fund or open-ended structures, aligning the manager\u2019s incentives with investor returns.<\/p>\n<p>Common conditions include: (i) a preferred return or hurdle rate, which is a minimum annual return (commonly 8% in private equity) that investors must receive before the manager is entitled to any carried interest; (ii) a high water mark, common in hedge funds, which ensures the manager only earns performance fees on net new gains and must recover any losses before earning further fees; (iii) a waterfall, being the distribution sequence determining how profits flow between investors and the manager\u2014European-style waterfalls pay carried interest only after all investors have received their capital plus preferred return across the entire fund, whereas American-style waterfalls may pay carried interest on individual deals as they are realised; and (iv) clawback provisions, which require the manager to return excess carried interest if, at fund wind-up, the manager has received more than its agreed share of overall profits.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are fee discounts \/ fee rebates or other economic benefits for initial investors typical in raising assets for new fund launches?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes. Fee discounts, fee rebates, and other economic benefits for initial investors are typical when raising assets for new fund launches. Early investors take on greater risk by committing capital before the fund\u2019s investment strategy has been validated, and fund managers commonly offer economic benefits to incentivise these anchor or seed investors. Common benefits include: (i) management fee discounts (e.g., a reduced rate for the life of the fund or a specified period); (ii) fee rebates (a portion of fees paid being returned periodically or at fund wind-up); (iii) carried interest participation (an opportunity to co-invest in a share of the manager\u2019s carried interest); (iv) reduced or waived placement fees; (v) capacity rights or pro-rata rights to invest in successor funds or co-investment opportunities; and (vi) most favoured nation (MFN) clauses entitling initial investors to receive the benefit of any more favourable terms subsequently granted to other investors of comparable size.<\/p>\n<p>These benefits are typically documented in the fund\u2019s governing documents (such as the limited partnership agreement) or in bilateral side letters negotiated with individual investors. MFN provisions often require disclosure of more favourable side letter terms to qualifying investors.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are management fee \u201cbreak-points\u201d offered based on investment size?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes. Management fee break-points based on investment size are common in the fund industry. Fee break-points are tiered fee structures where the management fee rate decreases as the investor\u2019s commitment or investment size increases, rewarding larger investors for deploying more capital. For example, a fund might charge 2% on the first \u00a350 million of committed capital, 1.75% on the next \u00a350 million, and 1.5% on amounts above \u00a3100 million. Alternatively, an investor committing above a specified threshold may receive a flat reduced rate on their entire commitment. Some sponsors aggregate an investor\u2019s commitments across multiple funds or products when calculating break-points, including commitments to successor funds, thus rewarding investors who maintain a broader relationship with the manager.<\/p>\n<p>In closed-ended funds structured as partnerships, fee break-points are usually documented in bilateral side letters or, less commonly, in the partnership agreement itself. In hedge funds and other open-ended structures, lower-fee share classes may be offered to larger investors, achieving a similar economic effect. Larger commitments provide managers with greater certainty of capital and reduce fundraising costs, justifying the reduced fee rate. Break-points also help managers attract and retain institutional investors who typically deploy larger amounts of capital.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are first loss programs used as a source of capital (i.e., a managed account into which the manager contributes approximately 10-20% of the account balance and the remainder is furnished by the investor)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes. First-loss arrangements are used to facilitate capital raising by reallocating risk between different sources of capital. The concept is broader than the managed-account model described in the question.<\/p>\n<p>Typically, one investor, sponsor or manager agrees to absorb an agreed level of losses before other investors are exposed. That protection can improve the risk\/return profile for other investors and make it easier to attract capital.<\/p>\n<p>This can be used by smaller or emerging managers seeking to establish or scale a strategy, including through managed accounts where the manager contributes capital and bears initial losses. It can also support newer or higher-risk strategies where investors might otherwise be reluctant to commit.<\/p>\n<p>More broadly, first-loss or subordinated capital is an important feature of blended finance. Government bodies, development finance institutions, foundations or other catalytic investors may provide junior or first-loss capital to reduce downside risk for private investors. This can help mobilise private capital into areas such as impact investing, climate, infrastructure and development finance where the underlying risk might otherwise deter institutional investors.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the typical terms of a seeding \/ acceleration program?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Seeding and acceleration arrangements typically involve an investor providing a significant, relatively long-term capital commitment to a fund or manager in return for enhanced economics. These may include reduced management fees or carried interest on the investor\u2019s own commitment and, more significantly, a share of the manager\u2019s management fees, carried interest or other revenues, sometimes across a broader platform or specified future funds.<\/p>\n<p>The investor may also receive preferential rights, such as enhanced information, capacity or co-investment rights, MFN protection and, in some cases, governance or consent rights. The economic participation may continue for a fixed period, until agreed AUM or revenue thresholds are reached, or indefinitely, subject to negotiated buy-out rights. Acceleration arrangements for more established managers often involve less extensive economics and governance than traditional seed deals.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What industry trends have recently developed regarding management fees and incentive\/performance fees or carried interest? In particular, are there industry norms between primary funds and secondary funds?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Several industry trends have developed regarding management fees and performance fees\/carried interest in recent years. There has been sustained downward pressure on management fees, driven by institutional investor scrutiny, competitive fundraising markets, and a focus on net returns, though this pressure has eased somewhat for larger, more established sponsors with strong track records. Rather than reducing headline rates, many sponsors now offer fee-free or reduced-fee co-investment capacity alongside the main fund commitment, lowering the investor\u2019s \u201cblended\u201d fee rate across their total exposure to the manager. Particularly in private credit and some real estate strategies, there is a trend towards charging management fees on invested capital or NAV rather than committed capital, better aligning fees with deployed assets. It is also increasingly common for management fees to step down after the investment period ends, reflecting the reduced active management required during the harvesting phase. Funds-of-funds have faced particular scrutiny over \u201cdouble-layered\u201d fees (fees paid both at the fund-of-funds level and by the fund-of-funds to its underlying investee funds), which can erode investor returns.<\/p>\n<p>Regarding the norms between primary funds and secondary funds: secondary funds typically charge management fees in line with or slightly below primary fund norms, and given that secondary funds often acquire assets at a discount and have shorter holding periods, some investors expect modestly lower fees. Carried interest rates for secondary funds are generally comparable to primary funds, though secondary funds may have lower hurdle rates reflecting the different risk\/return profile and shorter duration to distributions. Secondary funds often feature European-style waterfalls similar to primary funds, though the faster pace of distributions may result in earlier carried interest payments to the GP. GP commitment levels are broadly similar across primary and secondary funds.<\/p>\n<p>The growth of GP-led secondary transactions and continuation funds has introduced additional fee considerations, including whether existing investors rolling into a continuation vehicle should receive fee relief or modified terms.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What restrictions are there on marketing Alternative Investment Funds?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The marketing of AIFs in the UK is regulated by FSMA and FCA rules, and AIFMD (as implemented under UK law). Marketing under UK AIFMD is the direct or indirect offering or placement, at the initiative of the AIFM or on behalf of the AIFM of units or shares of an AIF it manages, to or with investors domiciled or with a registered office in the UK .<\/p>\n<p>An AIFM established in a third country (anywhere other than the UK or Gibraltar) may market the AIFs it manages in the UK including UK AIFs that are not FCA-authorised provided it complies with the UK\u2019s implementation of AIFMD Article 42. This is subject to certain other conditions being met, including whether cooperation arrangements are in place between the FCA and the AIFM&#8217;s supervisory authority in its home country. An AIFM established in a third country must register the AIF under the UK NPPR before commencing marketing (since the withdrawal of the UK from the EU, the EU marketing passport cannot be relied upon in the UK). \u00a0This is usually quick, inexpensive and straightforward. The AIFM will also need to comply with the relevant investor disclosure requirements set out in FUND 3 of the FCA Handbook and reporting requirements.<\/p>\n<p>Section 21 FSMA prohibits a person that is not authorised by the FCA, in the course of business, from communicating an invitation or inducement to engage in investment activity unless the communication has been approved by an authorised person or an exemption applies.<\/p>\n<p>The UK Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 exempts promotions made by unauthorised firms to various categories of recipient, including investment professionals and certain high net worth companies.<\/p>\n<p>Where the firm is authorised by the FCA, the firm may not promote an unauthorised collective investment scheme unless it can rely on certain exemptions under the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001. Exemptions for similar categories of recipient, including investment professionals, high net worth companies and high net worth individuals, are permitted.<\/p>\n<p>An FCA-authorised firm promoting investments must comply with Chapter 4 of the Conduct of Business Sourcebook (COBS), including the &#8220;fair, clear and not misleading rule&#8221;. COBS 4.12B imposes additional obligations when marketing to retail investors. In addition, managers of authorised funds must have regard to the prospectus requirements under COLL 4 Investor Relations of the FCA Handbook.<\/p>\n<p>Separate rules apply to AIFs that publish a prospectus under the FCA&#8217;s PRM Sourcebook.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is the concept of \u201cpre-marketing\u201d (or equivalent) recognised in your jurisdiction? If so, how has it been defined (by law and\/or practice)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>The UK does not have a concept of &#8220;pre-marketing&#8221;. The FCA Handbook currently states that for marketing to occur for purposes of UK AIFMD, the prescribed documentation and information should be in materially final form, and the fund is in a position where contractual offers to make an investment can be accepted, before applying for permission to market the AIF. The UK regime is reasonably permissive of activities that are considered &#8220;pre-marketing&#8221; in other jurisdictions without the requirement to make equivalent pre-marketing notifications.<\/p>\n<p>The provision of draft documents such as a promotional presentation or a pathfinder version of the private placement memorandum would therefore not constitute an offer or placement, provided such documents cannot be used by a potential investor to make an investment in the relevant AIF.\u00a0 However, a unit or share of the AIF should not be made available for purchase as part of the capital raising of the AIF on the basis of draft documentation to circumvent the marketing restriction. \u00a0Promotional materials provided prior to marketing in the UK will be subject to the FCA financial promotion regime and the applicable exemptions, detailed at question 4.1 above.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Can Alternative Investment Funds be marketed to retail investors?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes, subject to various applicable requirements. In particular, a key information document must be provided to retail investors in the UK under the UK PRIIPs Regulation, which must comply with a prescribed format and in line with certain technical standards, similar to the approach in the EU. From June 2027, the UK PRIIPs Regulation will be replaced by the UK Consumer Composite Investments (CCI) framework, which requires the provision of a &#8220;product summary&#8221; instead. Firms will have more flexibility in how they disclose general product information, risk and return information, costs and charges information and performance information, to investors. AIFMs must also have regard to the requirements of the FCA financial promotion regime, in particular the rules on mass marketing and client categorisation. Investors categorised as retail clients are entitled to higher levels of regulatory protection than professional clients, as per COBS 3.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Does your jurisdiction have a particular form of Alternative Investment Fund be that can be marketed to retail investors (e.g. a Long-Term Investment Fund or Non-UCITS Retail Scheme)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Yes. UK UCITS, Non-UCITS Retail Scheme (NURS) and Long-Term Investment Fund (LTIF), may generally be marketed to retail investors. The Long-Term Asset Fund (LTAF) is a &#8220;restricted mass market investment&#8221; which requires additional mandatory risk warnings when marketing to retail investors, alongside compliance with other conditions. QISs are &#8220;non-mainstream pooled investments&#8221; and thus may only be marketed to, amongst others, certified high-net worth investors and certified and self-certified sophisticated retail investors.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the minimum investor qualification requirements for an Alternative Investment Fund? Does this vary by asset class (e.g. hedge vs. private equity)?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Please refer to questions 4.1 &#8211; 4.4 above.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there additional restrictions on marketing to government entities or similar investors (e.g. sovereign wealth funds) or pension funds or insurance company investors?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>It should be noted that local public authorities or municipalities that do not manage public debt are to be treated as retail clients for the purposes of UK AIFMD. However, COBS 3 provides a process for opting-up such public authorities and municipalities to professional client status.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any restrictions on the use of intermediaries to assist in the fundraising process?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>AIFMD marketing restrictions apply both to marketing by the AIFM and to marketing carried out by another person \u201cat the initiative of, or on behalf of\u201d the AIFM, which captures intermediaries. Where a UK intermediary is appointed by the AIFM, any marketing it does at the initiative of or on behalf of the AIFM will require notification to the FCA, and the AIFM remains responsible for the intermediary\u2019s conduct.<\/p>\n<p>The requirements described in question 4.1 above apply for financial promotions communicated by an intermediary.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Is the use of \u201cside letters\u201d restricted?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There is no outright restriction on side letter terms. However, side letter terms cannot be given where they would place other investors at an overall material disadvantage. This is most commonly understood to restrict rights around preferential liquidity terms and information rights which may allow an investor to exercise redemption rights before others. Whilst fund managers are required to treat investors fairly, they need not treat them equally, and in particular it is generally accepted that preferential rights may be given in certain commercial settings, in particular to early or cornerstone investors (who bear more risk, during the early stages of a fund).\u00a0 In practice, this requires careful consideration of disclosure, as described below.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">Are there any disclosure requirements with respect to side letters?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>Under the UK AIFM regime, whenever an investor obtains preferential treatment or the right to obtain preferential treatment, the AIFM must make available such preferential treatment, the type of investors who obtain such preferential treatment and where relevant, their legal or economic links with the AIF or AIFM. For alternatives funds, this is typically addressed by the completion of a &#8220;most favoured nation&#8221; process after either the applicable closing or the final closing (in which the terms of side letters are circulated to the investor-base, and in most cases, made available for election with certain criteria). For hedge or other liquid strategies, preferential terms are typically disclosed in the marketing materials.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\t\t\t\t\t<li class=\"question-block filter-container__element\">\r\n\t\t\t\t\t\t<h3 class=\"filter-container__match-html\">What are the most common side letter terms? What industry trends have recently developed regarding side letter terms?<\/h3>\r\n\t\t\t\t\t\t<button id=\"show-me\">+<\/button>\r\n\t\t\t\t\t\t<div class=\"question_answer filter-container__match-html\" style=\"display:none;\"><p>There is a wide array of side letter terms including reduced fees, the provision of bespoke reporting and compliance representations and warranties (for example, compliance with sanctions laws or anti-money laundering standards).<\/p>\n<p>In recent times, due to the fragmentation of ESG requests received from investors, it is increasingly common to seek to push back on bespoke requests and to standardise offered provisions.<\/p>\n<p>More generally, managers increasingly offer master side letters, which contain a series of standard side letter provisions electable by any investor (or any investor meeting certain status requirements), which allows managers to standardise their obligations.<\/p>\n<p>Due to the downwards pressure on manager&#8217;s fees, it is increasingly common to document a co-investment allocation via side letter to effectively offer investors a lower blended fee rate.<\/p>\n<\/div>\r\n\r\n\r\n\t\t\t\t\t<\/li>\r\n\r\n\t\t\t\t\r\n<div class=\"word-count-hidden\" style=\"display:none;\">Estimated word count: <span class=\"word-count\">6765<\/span><\/div>\r\n\r\n\t\t\t<\/ol>\r\n\r\n<script type=\"text\/javascript\" src=\"\/wp-content\/themes\/twentyseventeen\/src\/jquery\/components\/filter-guides.js\" async><\/script><\/div>"}},"_links":{"self":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/comparative_guide\/148100","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/comparative_guide"}],"about":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/types\/comparative_guide"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/guides\/wp-json\/wp\/v2\/media?parent=148100"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}