The perimeter: is this an AIF, and who is the AIFM

The AIF definition as a cumulative test

An AIF is a collective investment undertaking, including investment compartments of such an undertaking, which raises capital from a number of investors with a view to investing it in accordance with a defined investment policy for their benefit, and which is not a UK UCITS. All the elements must be satisfied, so the analysis stops at the first limb that clearly fails (PERG 16.2, question 2.1, guidance).

An investment compartment is part of the overall AIF for the purposes of the general prohibition, so the overall fund's manager is the one managing an AIF (2.63, 2.64).

Capital raising and the single-investor look-through

Capital raising is the commercial activity of taking direct or indirect steps to procure the transfer or commitment of capital by investors, to invest it in accordance with a defined investment policy. Once, several times or ongoing, in cash or in kind, is immaterial. An undertaking's shares trading on a stock exchange is not, of itself, the raising of capital (2.10).

An undertaking which is so prevented still raises capital from a number of investors where the sole investor invests capital raised from more than one person for their benefit: a feeder into a master, a fund of funds, or an aggregating nominee (2.12).

Collective investment undertaking and defined investment policy

Three characteristics must all be present: no general commercial or industrial purpose; pooling of capital raised from investors to generate a pooled return for them; and unitholders or shareholders, as a collective group, having no day-to-day discretion or control. One or more, but not all, of the holders having that control does not put it outside the definition, and control need not be shown to establish there is no AIF (2.15, 2.17).

An ordinary commercial business is not a collective investment undertaking, and the tax distinction between "investment" and "trading" is not determinative (2.18). Where it is clear there is no defined investment policy there is no AIF; the policy indicators are at question 2.13, four of them repeated at 2.20.

Exclusions, joint ventures and family vehicles

PERG 16.6, question 6.1 tables the statutory exclusions, which come from the AIFMD UK Regulation rather than from FUND. Those a fund manager meets are the holding company, the group AIF and the AIFM whose registered office is outside the UK.

Joint ventures are not on that list, and an undertaking meeting the definition is an AIF even if called a joint venture. The exclusion derived from recital (8) applies where strategic financial and operating decisions are controlled by all the parties, each continuously involved in strategic management and none able to control unilaterally. Being consulted is not managing, nor is a right to give directions, and the ground is unlikely to be available where any investor is retail (2.46, 2.47).

Family vehicles rest on recital (7): the definition does not cover an arrangement in which the persons raising and providing the capital are the same (2.50). A family group investing alongside investors from outside that group satisfies the capital-raising limb (2.51).

Identification of the AIFM

A person manages an AIF when it performs risk management or portfolio management for the AIF, and performing only one is still managing an AIF (PERG 16.3, question 3.1). An external AIFM that is a full-scope UK AIFM must not provide portfolio management without risk management, or the reverse, so the FCA cannot grant a permission for that activity (FUND 1.4.4R(4)).

The additional activities at question 3.4, covering administration, marketing and activities related to the fund's assets, are managing an AIF only for a person also performing risk or portfolio management for that AIF (3.5).

A limited partnership under the Limited Partnerships Act 1907 may appoint its general partner as AIFM, which is then an external AIFM (3.16). A person that is not a legal person cannot be appointed AIFM or hold a Part 4A permission, yet can still breach the general prohibition by carrying on the activity (3.15).

AIFM status and the size thresholds

The land-holding small registered category disapplies its majority-of-assets-as-land condition during the first and last 180 days of the period during which the undertaking is an AIF. FUND 1.3.5G refers to thresholds without stating them; regulation 9 of the AIFMD UK Regulation sets them in euros: €500 million for unleveraged AIFs with no redemption rights exercisable during the 5 years after initial investment in each AIF, and €100 million otherwise, including assets acquired through leverage. A small authorised UK AIFM that stops meeting them must notify the FCA immediately on the form in SUP 15 Annex 6D R and apply within 30 calendar days to become full-scope (SUP 15.3.28R).