The AIFMD, fund management LLPs and partnership tax issues

The European Securities and Markets Authority (ESMA) has now produced its guidelines on sound remuneration policies under the Alternative Investment Fund Managers Directive (AIFMD), which apply to managers of alternative investment funds (AIFs). The Financial Conduct Authority in the UK has indicated that whilst there is a year long transition (until 21 July 2014) for existing firms (AIFMs) before the need for full compliance with the AIFMD, serious consideration must be given to preparing for that compliance. Remuneration policies are subject to detailed analysis in the guidelines and will give particular tax difficulties to AIFMs which operate through an LLP. The flexibility of capital and income allocation in an LLP has always been a significant advantage for an AIFM operating through an LLP when compared to other management structures, but the guidelines posit complex mandatory deferral arrangements for the risk adjustment of variable remuneration.