Investor Classification for European Investment Funds

#funds #alternativefunds #aif #moi

One protection does not fit all. Professional, Well - Informed or Retail?

Based on the revised Markets in Financial Instruments Directive II and related implementing measures (together “MIFID II”), as incorporated in 144(I)/2007 Law which provides for the Provisions of Investment Services, the Exercise of Investment Activities, the Operation of Regulated Markets and other related matters an Alternative Investment Fund should classify its investors into one of the following three classifications:

• Retail Investors, which are afforded the highest level of protection;
• Well Informed Investors, which benefit from an intermediate level of protection;
• Professional Investors, which benefit from an intermediate level of protection;
  

These respective investor classes reflect the fact that investors have different levels of knowledge and experience, and therefore, the level of regulatory protection differs. Such differences in the regulatory protection under MiFID II cover a broad range of topics including, among others, investor disclosure requirements, rules for executing investor orders, and assumptions which can be made regarding investors by an Alternative Fund.

The description of the three categories for classification of investors are the following:

Professional Investor

Professional investor is generally an investor who possesses the experience, knowledge and expertise to make its own investment decisions and properly assess the risk that it incurs. In order to be considered a professional investor, the entity or person must comply with the criteria as follows:

• Entities which are required to be authorized or regulated to operate in the financial markets. The list below includes all authorized entities carrying out the characteristic activities of the entities mentioned:
  • Credit Institutions
  • Investment Firms
  • Other authorized or regulated financial institutions
    
  • Insurance undertakings
  • Collective Investment schemes and management companies of such schemes
  • Pension funds and management companies of such funds
    
  • Commodity and commodity derivatives dealers
  • Locals
  • Other institutional Investors

 

• Large undertakings meeting two of the following size requirements, on a proportional basis:
  • balance sheet total at least EUR 20,000,000]
  • net turnover at least EUR 40,000,000
  • own funds at least EUR 2,000,000
    

• National and regional governments, public bodies that manage public debt, central banks, international and supranational institutions such as the World Bank, the Internal Monetary Fund, the European Central Bank, the European Investment Bank and other similar international organizations.
  

 

• Other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitization of assets or other financing transactions.
  

Where the investor of an Alternative Fund is an undertaking referred to above, the Fund must inform it prior to any provision of services that, on the basis of the information available to the Fund, the investor is deemed to be a professional investor, and will be treated as such unless the Fund and the investor agree otherwise. The Fund must also inform the investor that he can request a variation of the terms of the agreement in order to secure a higher degree of protection.
It is the responsibility of the investor, considered to be a professional investor, to ask for a higher level of protection when it deems it is unable to properly assess or manage the risks involved.

Well-Informed Investor

A Well-Informed Investor is any investor who is not professional, and satisfies the following criteria:

• Confirms that:
  -  He either has sufficient knowledge and experience in financial and business matters in order to be able to assess the benefits and associated risks;
  

      or
           -  His business is related to the management, acquisition or sale of assets, either for its own account or on behalf of third parties, of the same types as the investments of the Fund;
   and

• Either
  -  Invests at least €125.000

      or
           -  Has been assessed as a sufficiently well-informed investor by a credit institution, an AIFM, a UCITS Management Company, an Investment Firm, or any other EU subthreshold AIFM
      or
           -  Is senior officer in any of the entities mentioned above

• Irrespective of the above mentioned, the investor is a person who effectively directs the activities of the Company or its external manager, or is a person who manages the investment of that particular Fund.

Retail Investor

Retail Investors enjoy the highest level of protection provided by law. A retail investor is an investor who does not meet the conditions required to be included in the professional investors’ or the well-informed investors’ class.

INVESTOR CLASSIFICATION - AIFS / AIFLNP / RAIF / UCITS

•   AIF:   AIF funds are available to Professional, Well-Informed Investors or Retail Investors.
•   AIFLNP:  AIFLNP funds are only available to Professional or Well-Informed Investors.
•   RAIF:  RAIF funds are only available to Professional or Well-Informed Investors.
•   UCITS:  UCITS funds are available to Professional, Well-Informed Investors or Retail Investors.
  
  

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Professional Investors

Well-Informed Investors

Retail Investors

AIF	⇃	⇃	⇃
AIFLNP	⇃	⇃	X
RAIF	⇃	⇃	X
UCITS	⇃	⇃	⇃