Financial Services Quarterly Report - Fourth Quarter 2013: Management of French Funds and Access to the French Market: New Opportunities Offered by the AIFM Directive

by Dechert LLP


Further to the implementation of the AIFM Directive1 in France,new cross-border management and distribution possibilities are now available for investment products in the form of alternative investment funds (AIFs).

Increased Access to a Key Market

The French market is a major place to raise funds, as France boasts one of the highest savings rates in the EU.3 Indeed, with more than €3 trillion of assets under management and over 12,000 investment funds (including 9,000 AIF), France is one of the key jurisdictions in the asset management area.4

French investors favor local products, compared to EU funds and offshore structures. Major attributes that generate French investors’ interest are trust in products subject to a familiar regulation regime, as well as the fact that these products are eligible investments for institutional investors, such as pension funds (e.g., PERCO, PERP), life insurance companies and comparable regulated entities.

The AIFMD provides both a management and a marketing passport. Through the management passport, EU alternative investment fund managers (AIFMs) now have the opportunity to directly manage French funds, as well as greater access to the French savings market. Such cross-border organizations offer additional advantages, including economies of scale, decreased costs and efficient management for international structures.

The successful implementation in France of the UCITS passports5 – both the marketing passport as well as the relatively recent management passport introduced by the UCITS IV6 Directive – demonstrate that cross-border organizations are very popular, and comparable success may be anticipated in the alternative investment world.

In addition, as part of the implementation of the AIFMD, the AMF, the French financial regulator, has reframed and significantly simplified the range of French funds available. Among other structures, a new vehicle is now available – namely, the Professional Specialized Fund (PSF) – which may be marketed via passport to EU investors. The PSF is an attractive vehicle, with many features comparable to the Luxembourg SIF or Irish QIF. Key features of the PSF include:

    • There is no minimum or maximum investment ratio;
    • The fund is open to professional investors, as well as investors with a minimum subscription of €100,000;
    • There are no investment strategy constraints;
    • The fund may invest in any type of instrument;
    • There is no need to obtain approval from the AMF (only a declaration is required);
    • The entity may be structured in contractual or corporate form (FCP or SICAV, respectively); and
    • The entity is tax-neutral (tax-transparent if in contractual form, and tax-exempt if in corporate form).

For a more detailed description of the simplification of the French management company regime and the range of French funds that can be offered to investors following the transposition of the AIFMD into French law, please refer to DechertOnPoint, The Regulation of Managers and Funds in France Following the Implementation of the AIFM Directive

New Routes for Management

Previously, the only way to manage a French AIF was to establish a French management company or act via a delegation from a French manager. The AIFMD management passport offers two additional routes, whereby EU AIFMs may directly manage French AIFs:

    • Utilizing the “freedom to provide services” passport (FPS); and
    • Setting up a French branch under the “freedom of establishment.”

The delegation from a French manager to an EU or non-EU manager remains as an alternative to consider, but such delegation must comply with AIFMD requirements.7

FPS Passport

The feedback we have received from the AMF regarding UCITS IV implementation is that most of the EU managers managing French funds passport their activities via the FPS passport,which leads us to anticipate the same attractiveness in the AIFMD world. The main advantages of the FPS passport are that: it provides direct access to the French market with only a straightforward notification process;9 there is no need for a manager to establish a physical presence in France; and such FPS passport is easy to manage.

Practically speaking, this means that:

    • An EU AIFMD-compliant manager that passports its activities into France via the FPS will directly manage a French AIF;
    • The home state regulator of the AIFM will remain the competent authority; and
    • The French rules applicable to the AIFM are limited to imposing (i) a duty to act in an honest, loyal and professional way when performing investment services and in the interests of clients; (ii) appropriate measures to prevent conflicts of interests affecting clients; and (iii) an obligation to comply with French-specific provisions applicable to French AIFs, which include rules related to marketing in France.

French Branch

Having a French branch requires compliance with the local regulations related to having presence in France, such as rules of good conduct (for example, pertaining to conflicts of interest, best execution, and client classification, information and suitability) and French corporate, employment and regulatory requirements (including reporting duties). However, the notification process is easy to manage and there is no need to obtain a French license.10 Advantages of establishing a local branch include: creating visibility in the French market; having experts in place to assess local investment opportunities; and potentially dispensing with the need to hire intermediaries such as distributors.

Also, given that a French AIF is required to have a custodian located in France (either a French custodian or an EU custodian with a French branch), as well as its central administration in France, a French presence could partially handle this issue (for instance, performance by the French branch of accounting tasks).

Direct Distribution Barriers Yet to be Resolved

At the EU level, there is on-going debate regarding the passporting of receipt and transmission of orders (RTO) and investment advisory services within the framework of the AIFMD. The current position of the European Commission11 is that the AIFMD management passport should not cover RTO and investment advisory activities. Practically speaking, this means that an EU manager managing a French AIF via the AIFMD passport could not directly market such AIF in France.

In France, the AMF believes, as a practical matter, that it is unlikely active fund marketing activities may be carried out without providing investment advice and/or RTO. Therefore, the AMF supports an AIFMD passport that enables the passporting of RTO and investment advice. This would result in the possibility of directly marketing to French investors without the necessity of utilizing local distributors.

It is anticipated that clarification at the EU level will be forthcoming. Adoption of the French approach on an EU-wide basis is recommended, in order to provide a full fledged and efficient passport to AIFMs.


1. Alternative Investment Fund Managers Directive, 2011/61/EC (AIFMD).

2. The French Financial and Monetary Code was amended by Decree n°2013-687 and Order n°2013-676, both dated 25 July 2013. The final version of title III (service providers) of the General Regulation of the French financial regulator, the Autorité des Marchés Financiers (AMF) was published in August 2013, and the final version of Book IV (products) is anticipated to be published shortly.

3. In 2012, the savings rate for France was 15.2%, whereas the average EU rate was just under 11%. Source: Eurostat.

In terms of EU investment funds’ domiciliation, France ranks 2nd, with a market share of 16.8% as of the end of 2012. Source: EFAMA Quarterly Statistical Release
n°52 – fourth quarter of 2012.

4. As of December 2013, more than 600 EU funds are passported in France for distribution and approximately 25 EU management companies had taken advantage of the UCITS management passport, either on a cross-border or a branch basis.

5. Directive 2009/65/EC.

6. These requirements include: (i) objective justification of the entire structure of the delegation; (ii) appointment of a duly registered delegate with the necessary resources and expertise; (iii) establishment of an effective supervision program by the delegator; and (iv) a prohibition against delegation to letter-box entities.

7. In more than 85% of the instances in which EU managers utilize a UCITS passport to manage French funds, such managers utilize the FPS passport rather than establishing a French presence. See, for instance, the official AMF database listing the various EU managers passporting their activities into France.

8. In order to take advantage of the FPS passport, a manager must complete and send to its home state regulator a standard form that provides the names of the countries targeted, company details (e.g., branch address, managers), a list of the contemplated services and a description of the program of operations. The manager may begin to perform its activities abroad one month after the relevant regulator’s receipt of the complete documentation.

9. The time frame for operating a French branch is two months following the AMF’s receipt of the complete notification.

10. See, notably, the EC Q&A regarding the AIFMD – in particular, questions 1143 and 1144.


Written by:

Dechert LLP

Dechert LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.