US Fund Managers Need to Understand 5 crucial points about the AIFMD Third-Country Passport
As of mid-2025, the Third-Country Alternative Investment Fund Managers (AIFM) passport for non-EU AIFMs remains unimplemented. Despite the Alternative Investment Fund Managers Directive (AIFMD) framework contemplating extending the pan-European marketing passport to non-EU AIFMs in the future, no final steps have been taken to launch this passport.
The European Securities and Markets Authority (ESMA) plays a pivotal role in the determination of the MSR, and the process of selection is disciplined by a Commission implementing regulation. ESMA has provided technical advice assessing whether there are significant obstacles to extending the passport to third countries, including investor protection, market disruption, competition, and systemic risk monitoring.
Extension of the passport requires the EU Commission to formally propose and implement it based on ESMA's advice. So far, no legislative action has triggered the passport's activation for non-EU firms. The current status is that the third-country passport has not been implemented, and no timeline for availability has been officially set.
A third country AIFM, once authorized, will be subject to two different authorities, regimes, and processes - the one of their own state and the one of the MSR chosen - and will be required to comply with two sets of rules. If an equivalence decision is not obtained, the phase-out of the private placement regime in some European domiciles could pose further uncertainty on existing strategies to access European investors.
The process of choosing an MSR involves making an application to the competent authorities of all potential MSRs, with a joint decision being issued by these authorities and ESMA within one month. A third country AIFM must choose a Member State of Reference (MSR) for authorization under AIFMD, and the selection of the MSR is based on set parameters and is not entirely left to domicile shopping of third country AIFMs.
Once a delegated act is issued, there will be a transitional period when both the third country AIFMD passport and the local national private placement regime will coexist across European domiciles. During this period, non-EU AIFMs must market via National Private Placement Regimes (NPPRs) or other national regimes.
The process of extending the passport to third country AIFMs involves objective and subjective requirements to be met, both at the level of the third country domicile and the AIFM. A third country AIFM, once deemed equivalent, must be authorised under AIFMD and comply with the whole directive to be able to take advantage of European cross-border fund distribution for their European and third country AIFs.
The AIFMD marketing passport, while primarily reserved for European AIFMs, can be extended to AIFMs from certain third countries. The views expressed in this article are those of the author and do not necessarily reflect the views of AlphaWeek or its publisher, The Sortino Group.
References:
- ESMA's Advice on Third Country Equivalence
- AIFMD Q&A
- AIFMD Delegated Regulation
- UK AIFMs and the AIFMD Passport
- Given the ongoing uncertainty about the Third-Country Alternative Investment Fund Managers (AIFM) passport, a third country AIFM might need to reconsider its business strategies for investing in European markets.
- In light of the complex procedure for obtaining the AIFMD marketing passport, a third country Alternative Investment Fund Manager (AIFM) must carefully meet the objective and subjective requirements, both at the domestic level and at the AIFM level, before it can leverage the directive for cross-border fund distribution in Europe.
