The EU Alternative Investment Fund Managers Directive (2011/61/EU) (the “Directive” or “AIFMD”) limits delegation by a manager regulated under the Directive (an “Alternative Investment Fund Manager” or “AIFM”). Delegation by an AIFM is subject to the criteria set out in Article 20 of the Directive and elaborated in Articles 75 to 82 of the European Commission’s December 19, 2012, Delegated Regulation (the “Level 2 Regulation”).

An AIFM intending to delegate any functions to a third party must notify its regulator before the delegation arrangements become effective and must comply with numerous conditions set out in the Directive and elaborated in the Level 2 Regulation. In particular, Article 20(3) of the Directive prohibits an AIFM from delegating its functions to such an extent that it can no longer be considered to be acting as manager of the relevant fund and becomes a “letter-box entity.” Article 82 of the Delegated Regulation sets out situations in which an AIFM has delegated the performance of its functions to such an extent that it will be deemed to be a letter-box entity.