The Netherlands has long been a magnet for investment funds, drawing both local and international fund managers. With its robust legal framework, transparent governance, and stable political climate, the country is a prime location for setting up any investment fund. Whether you're a seasoned investment adviser or a newcomer in the financial institutions sector, the Netherlands offers a fertile ground for private equity funds, venture capital initiatives, and other types of investment vehicles.
Setting up an investment fund in the Netherlands is a multi-step process that requires careful planning and compliance with regulatory requirements.
Fund managers usually kick off the process by consulting with investment advisers and other professionals to discuss the fund's structure and terms. This structure is influenced by various factors, including the interest of prospective Limited Partners (LPs), the fund's investment strategy, and relevant tax considerations. You can read about the most common legal structures for an investment vehicle further down in this article.
In the Netherlands, a fund manager cannot manage, sell or market an investment fund towards LPs without obtaining a license or registration from the Netherlands Authority for the Financial Markets (AFM). The AFM grants licenses under Dutch law, which implements the Alternative Investment Fund Managers Directive (AIFMD).
After settling on an investment company structure, the fund manager collaborates with legal advisors to prepare a term sheet outlining the investment fund's main terms and conditions. To kickstart the demand with as many investors as possible, the fund manager also prepares marketing materials. These materials often include investment advice, potential past performance or other funds and insights into emerging markets, aiming to attract LPs and investors.
Fund managers usually select a fund administrator to assist with investor onboarding, fund administration, investor reporting, Special Purpose Vehicle (SPV) accounting, and regulatory reporting. Although the administrator is not an adviser, it often provides guidance on compliance and reporting standards.
For Dutch AIFMs, the fully licensed regime stipulates that an AIFM is prohibited from managing an AIF or marketing interests in an AIF in the Netherlands without a license from the AFM, unless the exemption for ‘Small managers’ applies, whose assets under management do not exceed: €500m or 100m (leveraged), provided that the fund is marketed to less than 150 LP’s and LP’s have no redemption rights exercisable for a period of five years following the date of the initial investment in each fund. the AIFM must look at the total of all funds for which the AIFM is appointed.
*You can read a full explanation regarding the ‘Small managers’ regime at the end of this article.
If such exemption does not apply, the AFM will grant a license to a Dutch AIFM upon application if the AIFM meets the requirements under Dutch law implementing the AIFMD. The AFM pays attention to, among other things, the operational risk and control structure of the AIFM, its management, the use of an ISAE-II certified administrator, depositary, and capital requirements.
The regulatory landscape varies for non-Dutch AIFMs based on their EU status. EU AIFMs can manage assets of a Dutch investment fund using an AIFMD 'passport.' Non-EU AIFMs must comply with the Dutch version of the 'national private placement regime' of the AIFMD.
Commonly used legal forms for investment funds in the Netherlands include partnerships like a CV (Commanditaire Vennootschap) or an FGR (Fonds voor Gemene Rekening). These investment vehicles are generally tax-transparent and relatively easy to set up for an investment company. They are often the go-to choice for private equity, venture capital and Debt funds.
A Cooperative is a unique form of association and serves as a separate legal entity. It is subject to taxation and is commonly used to benefit from Dutch participation exemption rules. This investment company vehicle is particularly useful for funds looking to raise capital while enjoying participation exemption for their investors.
A BV (Besloten Vennootschap) is the Dutch equivalent of a private company with limited liability. It is generally the preferred legal form for specific Dutch tax fund regimes and Real Estate setups. It offers a more structured way to raise capital and manage the fund's assets.
The Netherlands offers a fertile ground for both domestic and international fund managers looking to establish investment funds. With its robust regulatory framework and a variety of investment vehicles to choose from, the country is an ideal location for private equity funds focusing on asset classes like private equity and emerging markets. By adhering to the regulations and partnering with a professional investment adviser, fund managers can successfully raise capital and operate their investment funds in this attractive jurisdiction.
By understanding the ins and outs of the Dutch investment landscape, fund managers can make informed decisions that align with their investment strategies, whether they are focused on private equity, venture capital, debt & credit or other asset classes. With the right investment advice and a thorough understanding of the regulatory landscape, investing or setting up an investment fund in the Netherlands can be a rewarding endeavor.
Dutch-based Alternative Investment Fund Managers (AIFMs) can take advantage of a special exemption known as the 'Small Managers Registration Regime,' as outlined in Section 2:66a of the Financial Supervision Act (AFS). To qualify for this exemption, several criteria must be met by the AIFM.
The AIFM, whether managing independently or through an entity under shared management or control, must maintain a portfolio of AIFs that do not collectively exceed specific asset under management (AuM) limits, often referred to as the "AuM Thresholds":
- A maximum of EUR 100 million; or
- Up to EUR 500 million, on the condition that all AIFs overseen by the AIFM are unleveraged and have restricted redemption rights for at least five years from the initial investment date.
Additionally, the AIFM is only allowed to market interests in each managed AIF under certain limitations, commonly known as the "Placement Restrictions":
- Only to professional investors, as defined by Section 1:1 of the AFS;
- To less than 150 individuals; or
- When the investment per investor is at least EUR 100,000.
To clarify the last point, the Netherlands Authority for the Financial Markets (AFM) has specified the following:
- The initial capital commitment from each investor must be a minimum of EUR 100,000, excluding any additional charges;
- The first amount drawn from each investor's commitment should also meet or exceed EUR 100,000; and
- The committed capital must never dip below EUR 100,000 at any given time.
If an AIFM satisfies both the AuM and Placement criteria, it is then required to formally register both itself and any AIFs it manages or intends to market. The registration is submitted through a digital portal and should include details such as the current AuM and an outline of the investment strategy. The AFM imposes a registration fee of EUR 4,400. Upon successful review and acceptance of the application, the AIFM and its managed AIFs will be publicly listed in the AFM's online register. Post-registration, there is no mandatory waiting period for the AIFM to begin managing or marketing its AIFs in the Netherlands.
If the AIFM plans to introduce a new AIF post-registration, it is recommended to register the new fund a minimum of two weeks prior to initiating any marketing activities. Although this two-week timeframe is not legally required, it is strongly advised by the AFM. Should the AIFM exceed the designated AuM limits or fail to adhere to the Placement Restrictions at any point, it has 30 calendar days to apply for a full license from the AFM.
© 2020 TRUSTMOORE
ISAE3402 CERTIFIED