An increasing number of investment funds opt for the AIFMD 'light' regime in order to remain outside the scope of a full authorization. At first glance, this may appear to allow funds to operate largely outside supervision, but this is a misconception. 'Light' managers are also subject to reporting and information obligations and remain bound by multiple statutory and regulatory frameworks.
The light regime is popular across various asset classes, including equities, derivatives, real estate, and private equity. It applies to managers of alternative investment funds whose assets under management remain below 100 million euro (open-ended, including leverage) or 500 million euro (closed-ended, without leverage).
Funds that fall within the registration regime must comply with a number of conditions. For example, cross-border offering of participations is not permitted, limiting distribution to within the Netherlands. In addition, a registration and reporting obligation applies towards the AFM, under which fund managers must report the size and activities of the fund. Furthermore, managers are required to provide investors with accurate and non-misleading information regarding, among other things, the investment policy and associated risks.
Relevant additional laws and regulations
Although light funds are not subject to supervision under the AIFMD, several statutory frameworks remain applicable to these funds:
Managers are required to verify whether (prospective) investors and correspondent relationships appear on (international) sanctions lists.
Managers are responsible for the careful handling of personal data of investors and other involved parties. All processes and data processing activities must comply with the requirements set out in the GDPR.
Light managers of funds established as a fund for joint account (FGR) are required to comply with the registration obligation in the UBO register for trusts. This register provides transparency into the individuals who hold a role or a financial interest in trusts and comparable legal arrangements. For FGRs, this means that each individual participant must be registered as a UBO, irrespective of the size of their interest.
Managers are required to be transparent about the sustainability aspects of their investment funds in accordance with the SFDR. This regulation has an impact at multiple levels and, in principle, applies to all investment funds, regardless of whether they are explicitly marketed as sustainable.
Managers offering investment funds to non-professional (retail) investors are required, under the PRIIPs Regulation, to prepare a Key Information Document (KID). This document provides investors with standardized information on the characteristics, risks, and costs of the investment product and must, for many investment funds, be updated on a monthly basis.
Operations and organization
Another key point of attention for light funds is the maintenance of a robust and reliable administration. The administration forms the backbone of a fund and plays a critical role in both internal operations and compliance with statutory obligations. Fund administration includes the valuation of the fund (Net Asset Value – NAV), the preparation of reports, and the accurate processing of investor subscriptions and redemptions.
The NAV calculation is essential, as it directly affects transactions within the fund, such as entry and exit moments for investors. In addition, fund administration can be complex due to factors such as varying subscription dates, differing investment amounts, performance fees, and high-water marks (HWM). A transparent and well-organized administration contributes to the confidence of both investors and supervisory authorities.
Like AIFMs, light managers are also required to maintain a sound compliance and risk management framework. This ensures that all relevant laws and regulations, such as the Wwft and SFDR, are properly complied with. Furthermore, managing a fund entails a clear responsibility towards investors. All matters set out in the fund documentation -such as the investment policy, fee structure, and risk management approach- must be adhered to in practice.
Not only investment risks, but also operational risks, including IT risks and integrity risks, must be actively identified, monitored, and managed.
Transparency towards investors is a core obligation for fund managers, including under the light regime. This requires regular reporting on the current value of the fund and on material events that may affect the investments. In addition, light managers are required to include the following exemption statement in pre-contractual documentation: “Warning! You are investing outside AFM supervision.”
For funds with sustainability objectives or characteristics, compliance with the SFDR is essential. This requires managers to document how sustainability is integrated into the investment process and how this is reflected in the fund’s policy and disclosures.
Outsourcing
While there is scope to outsource certain activities (such as client due diligence), formal responsibility remains with the fund manager at all times. Activities such as fund administration, compliance, and marketing may be outsourced. A specialized fund administrator can add an additional layer of independence and enhance trust among investors. An external compliance specialist can provide support through periodic reviews and advice on evolving regulatory requirements. When outsourcing marketing activities, particular attention must be paid to the registration regime, in order to avoid the unintended offering of the fund outside the Netherlands.
So, is a 'light' fund really as light as the name suggests? The answer is clear: no. While it entails fewer regulatory requirements than a full AIFMD authorization, a wide range of obligations and responsibilities continue to apply. Fund managers should not underestimate these requirements.
